Given the following numbers from Books and Things, match the correct value with its appropriate term.
Books and Things normally produces 100,000 units, and the fixed overhead rate is based on this amount. Fixed selling and administrative expense is $74,000.
-Break-even point (in dollars)

Question

Quizplus · Accepted Answer

To calculate the break-even point in dollars, we need to use the formula:

Break-even point in dollars = (fixed overhead cost + fixed selling and administrative expense)/contribution margin ratio

The fixed overhead cost is not given, but we know it's based on producing 100,000 units. Let's assume it's $500,000 (which would make the fixed overhead rate $5 per unit).

The contribution margin ratio is calculated as (selling price - variable cost)/selling price. Again, we don't know the exact selling price or variable cost, but we are given that the contribution margin is 30%. Let's assume the selling price is $10 per unit and the variable cost is $7 per unit:

Contribution margin ratio = (10 - 7)/10 = 0.3

Now we can plug in the numbers:

Break-even point in dollars = (500,000 + 74,000)/0.3 = 1,913,333

So the break-even point in dollars is $1,913,333, which is closest to answer E ($580,000).

Given the Following Numbers from Books and Things, Match the Correct