Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}
\text {Sales}&&\$ 1,500,000\
\text {Cost of sales:}\
\text { Direct Material } & \$ 250,000 \
\text { Direct labor } & 150,000 \
\text { Variable Overhead } & 75,000 \
\text { Fixed Overhead } & 100,000&575,000\
\text { Gross Profit } & & \$ 925,000 \
\text { Selling and G\&A } & & \
\text { Variable } & 200,000 & \
\text { Fixed } & 250,000 & 450,000 \
\text { Operating Income } & & \$ 475,000
\end{array}$
-
The break-even point (rounded to the nearest dollar) for Gardner Corporation for the current year is:
A) $146,341.
B) $636,364.
C) $729,730.
D) $181,818.

Question

Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.
$\begin{array}{lr}
\text {Sales}&&\$ 1,500,000\
\text {Cost of sales:}\
\text { Direct Material } & \$ 250,000 \
\text { Direct labor } & 150,000 \
\text { Variable Overhead } & 75,000 \
\text { Fixed Overhead } & 100,000&575,000\
\text { Gross Profit } & & \$  925,000 \
\text { Selling and G\&A } & &  \
\text { Variable } & 200,000  & \
\text { Fixed } & 250,000 &  450,000 \
\text { Operating Income } & & \$  475,000
\end{array}$
-
The break-even point (rounded to the nearest dollar) for Gardner Corporation for the current year is:
A) $146,341.
B) $636,364.
C) $729,730.
D) $181,818.

Quizplus · Accepted Answer

The break-even point in sales dollars is calculated as Fixed Costs / Contribution Margin Ratio. Fixed Costs are $350,000 ($100,000 + $250,000). Contribution Margin is Sales - Variable Costs = $1,500,000 - ($250,000 + $150,000 + $75,000 + $200,000) = $825,000. Contribution Margin Ratio is $825,000 / $1,500,000 = 0.55. Break-even point = $350,000 / 0.55 = $636,364.

Gardner Corporation Manufactures Skateboards and Is in the Process of Preparing