Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point in total sales dollars was:

Question

Quizplus · Accepted Answer

The break-even point can be calculated by dividing the fixed costs by the contribution margin ratio (contribution margin divided by total sales). We don't have the fixed costs, but we can use the information provided to back into the break-even point.

Contribution margin ratio = contribution margin / total sales = $160,000 / $640,000 = 0.25

To break even, the net loss of $40,000 would need to be covered by the contribution margin:

$40,000 / 0.25 = $160,000

Therefore, the break-even point in total sales dollars is $640,000 (last year's sales) plus the amount needed to cover the net loss:

$640,000 + $160,000 = $800,000

So the correct answer is choice C, $800,000.

Last Year, Black Company Reported Sales of $640,000, a Contribution