Dirth Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60% of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales. What is the sales dollars level required to break even at the old price of $7.50?

Question

Quizplus · Accepted Answer

To calculate the break-even point in sales dollars at the old price of $7.50, we use the formula: Break-even point in sales dollars = Fixed expenses / (1 - Variable expense ratio). The variable expense ratio is 60% or 0.6, so the calculation is $30,000 / (1 - 0.6) = $30,000 / 0.4 = $75,000.

Dirth Company Sells Only One Product at a Regular Price