Last month Peggy Company had a $30,000 profit on sales of $250,000.Fixed costs are $60,000 a month.What sales revenue is needed for Peggy to break even?

Question

Quizplus · Accepted Answer

To calculate the break-even point in sales revenue, we use the formula: Break-even Sales = Fixed Costs / (1 - Variable Cost Ratio). The variable cost ratio can be found by subtracting the profit margin from 1. In this case, the profit margin is $30,000 / $250,000 = 0.12 or 12%. Therefore, the variable cost ratio is 1 - 0.12 = 0.88. Plugging into the formula: $60,000 / (1 - 0.88) = $60,000 / 0.12 = $500,000. However, the calculation provided seems to have been misunderstood. The correct approach to find the break-even point is to understand that the fixed costs are $60,000, and we need to cover these costs to break even. Given the profit and sales figures, we can infer the contribution margin ratio, which is necessary to calculate the break-even sales revenue. The correct calculation involves understanding the relationship between fixed costs, variable costs, and the contribution margin, not directly provided in the options or the initial explanation. The break-even point is actually calculated by dividing the fixed costs by the contribution margin ratio. Without the explicit variable costs or contribution margin, a direct calculation from the provided options is not straightforward. The correct answer, based on the options given and assuming a misunderstanding in the explanation, would be to re-evaluate how the break-even point is calculated given the profit, fixed costs, and sales figures.

Last Month Peggy Company Had a $30,000 Profit on Sales