Last month, Everest Environmental Services had revenues amounting to $50,000, while direct labor and other variable costs were $25,000 and fixed costs were $20,000. Everest has an income tax rate of 42%. Based on this information, which statement is correct about last month's results?

Question

Quizplus · Accepted Answer

Everest had sales revenues of $50,000 with direct costs of $25,000. This means it had a contribution margin of $50,000 F1F1F1S1?F1F1F10 $25,000 = $25,000, resulting in a 50% contribution margin ratio ($25,000 ÷ $50,000). Break-even is equal to the amount of sales revenues needed to offset fixed costs of $20,000 while carrying a 50% contribution margin ratio. Therefore, $20,000 ÷ 50% = $40,000 of revenues are needed to break-even. If sales revenues are $50,000, Everest margin of safety in sales revenues is calculated as 50,000 F1F1F1S1?F1F1F10 $40,000 = $10,000.

Last Month, Everest Environmental Services Had Revenues Amounting to $50,000