Sweet Manufacturing is planning to sell 400000 hammers for $6 per unit. The contribution margin ratio is 20%. If Sweet will break even at this level of sales what are the fixed costs?

Question

Quizplus · Accepted Answer

Fixed costs can be calculated using the formula: Fixed Costs = Total Sales - (Variable Costs + Fixed Costs). The contribution margin ratio is 20%, which means 20% of sales contribute to covering fixed costs and profit. Total sales are 400,000 units at $6 each, totaling $2,400,000. The contribution margin is 20% of $2,400,000, which is $480,000. Since Sweet will break even, all of this contributes to covering fixed costs, making the fixed costs $480,000.

Sweet Manufacturing Is Planning to Sell 400000 Hammers for $6