Dynamite Co. has fixed costs of $50,000 (with 60% attributable to manufacturing overhead) and breakeven sales of $500,000. What is its projected gross margin at $1,000,000 in sales?
A) $50,000
B) $60,000
C) $70,000
D) $80,000

Question

Quizplus · Accepted Answer

First, we need to calculate the total variable costs by subtracting the fixed costs from the breakeven sales:
$500,000 (breakeven sales) - $50,000 (fixed costs) = $450,000 (total variable costs)
We know that 60% of the fixed costs are attributable to manufacturing overhead, so we can calculate the manufacturing overhead as:
60% x $50,000 = $30,000
We can then subtract the manufacturing overhead from the total variable costs to get the cost of goods sold:
$450,000 - $30,000 = $420,000 (cost of goods sold)
To calculate the gross margin, we subtract the cost of goods sold from the total sales:
$1,000,000 (total sales) - $420,000 (cost of goods sold) = $580,000 (gross margin) 
Therefore, the projected gross margin is $580,000.
The closest option to the answer is C, which is $70,000.