How much depreciation expense exists in a firm that has a break-even level of revenues of $2 million, fixed costs of $400,000, and a 60 percent ratio of variable costs to sales?
A)$144,000
B)$266,667
C)$400,000
D)$666,667 $2,000,000 =
800,000 = 400,000 + Dep

Question

Quizplus · Accepted Answer

The break-even point is where total revenues equal total costs (fixed + variable). At break-even, $2,000,000 = $400,000 (fixed costs) + $1,200,000 (variable costs, which is 60% of $2,000,000) + Depreciation. Therefore, Depreciation = $2,000,000 - $1,600,000 = $400,000.

How Much Depreciation Expense Exists in a Firm That Has