Last year, Terrific Copying had total revenue of $475 000, while operating at 60% of capacity. The total of its variable cost is $150 000. Fixed costs were $180 000. What is Terrific's break-even point expressed in dollars of revenue?
A) $289 855
B) $1 077 844
C) $900 000
D) $263 158
E) $300 000

Question

Quizplus · Accepted Answer

First, we need to calculate the contribution margin (CM) per unit:

CM = Total Revenue - Total Variable Costs

CM = $475,000 x 0.4 - $150,000

CM = $95,000

Next, we can use the contribution margin to calculate the break-even point in units:

Break-Even Point (units) = Total Fixed Costs ÷ CM

Break-Even Point (units) = $180,000 ÷ $95,000

Break-Even Point (units) = 1.895

Since the company operates at 60% of capacity, the actual break-even point in units is:

Actual Break-Even Point (units) = 1.895 ÷ 0.6

Actual Break-Even Point (units) = 3.158

Finally, we can calculate the break-even point in dollars of revenue:

Break-Even Point (revenue) = Actual Break-Even Point (units) x Price per Unit

Break-Even Point (revenue) = 3.158 x ($475,000 ÷ 0.4 ÷ 0.6)

Break-Even Point (revenue) = $263,158

Therefore, the answer is D) $263,158.

Last Year, Terrific Copying Had Total Revenue of $475 000