Last month Empire Company had a $30,000 profit on sales of $250,000.Fixed costs are $60,000 a month.How much would sales have to decrease for Empire to break even?

Question

Quizplus · Accepted Answer

To break even, the company's profit would have to be zero, meaning they would need to have revenue equal to their fixed costs. Therefore, we can set up the equation: 
$250,000x - $60,000 = $0 
Solving for x, we get $240,000/ $250,000 = 0.96 = 96%
This means that the company would need to decrease their sales by 4% to break even. 
4% of $250,000 is $10,000. 
So, the company would need to decrease their sales by $10,000 per month to break even. 
$60,000/$10,000 = 6. 
Therefore, the company would need to decrease their sales by 6 months to break even. 
$250,000 x 6 = $1,500,000. 
Therefore, to break even, sales would need to decrease by $1,500,000. 
That would be choice B.

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