Wallace, Inc. prepared the following budgeted data based on a sales forecast of $6,000,000: $$\begin{array} { | l | l | l | }
\hline & \text { Variable } & \text { Fixed } \
\hline \text { Direct materials } & \$ 1,600,000 & \
\hline \text { Direct labour } & 1,400,000 & \
\hline \text { Factory overhead } & 600,000 & \$ 900,000 \
\hline \text { Selling expenses } & 240,000 & 360,000 \
\hline \text { Administrative expenses } & 60,000 & 140,000 \
\hline \text { Total } & \$ 3,900,000 & \$ 1,400,000 \
\hline
\end{array}$$ What would be the amount of sales dollars at the break-even point?

Question

Wallace, Inc. prepared the following budgeted data based on a sales forecast of $6,000,000: $$\begin{array} { | l | l | l | } 
\hline & \text { Variable } & \text { Fixed } \
\hline \text { Direct materials } & \$ 1,600,000 & \
\hline \text { Direct labour } & 1,400,000 & \
\hline \text { Factory overhead } & 600,000 & \$ 900,000 \
\hline \text { Selling expenses } & 240,000 & 360,000 \
\hline \text { Administrative expenses } & 60,000 & 140,000 \
\hline \text { Total } & \$ 3,900,000 & \$ 1,400,000 \
\hline
\end{array}$$ What would be the amount of sales dollars at the break-even point?

Quizplus · Accepted Answer

To calculate the break-even point in sales dollars, we use the formula: $$ \text{Break-even Sales} = \frac{\text{Fixed Costs}}{\text{Contribution Margin Ratio}} $$ The contribution margin ratio is calculated as: $$ \text{Contribution Margin Ratio} = \frac{\text{Sales} - \text{Variable Costs}}{\text{Sales}} $$ From the data, total variable costs are $3,900,000 and total fixed costs are $1,400,000. The sales forecast is $6,000,000. Thus, the contribution margin ratio is: $$ \text{Contribution Margin Ratio} = \frac{6,000,000 - 3,900,000}{6,000,000} = \frac{2,100,000}{6,000,000} = 0.35 $$ Therefore, the break-even sales in dollars are: $$ \text{Break-even Sales} = \frac{1,400,000}{0.35} = 4,000,000 $$

Wallace, Inc What Would Be the Amount of Sales Dollars at the Sales