Last month Dexter Company had a $15,000 loss on sales of $150,000.Fixed costs are $60,000 a month.By how much do sales have to increase for Dexter to break even?

Question

Quizplus · Accepted Answer

To break even, total sales must cover both variable and fixed costs. Currently, Dexter has a $15,000 loss, meaning they need an additional $15,000 in contribution margin to break even. The contribution margin ratio is ($150,000 - $60,000) / $150,000 = 0.6. Therefore, the required increase in sales is $15,000 / 0.6 = $25,000. Adding this to the current sales of $150,000 gives $175,000, which is $25,000 more than the current sales. Thus, the total increase needed is $50,000.

Last Month Dexter Company Had a $15,000 Loss on Sales