Market Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000.
-What is Market's break-even sales volume?
A) $800,000.
B) $1,000,000.
C) $1,200,000.
D) $2,000,000.

Question

Market Sales had $1,200,000 in sales last month. The variable cost ratio was 60% and operating profits were $80,000. 
-What is Market's break-even sales volume?
A) $800,000.
B) $1,000,000.
C) $1,200,000.
D) $2,000,000.

Quizplus · Accepted Answer

The break-even sales volume is calculated by dividing fixed costs by the contribution margin ratio. The contribution margin ratio is 40% (100% - 60% variable cost ratio). Operating profits of $80,000 imply fixed costs are $400,000 (since $80,000 = $1,200,000 * 40% - Fixed Costs). Therefore, break-even sales = $400,000 / 40% = $1,000,000.

Market Sales Had $1,200,000 in Sales Last Month