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Grayson Enterprises manufactures springs and shock absorbers.Springs account for 40% of the company's total sales revenue,whereas shocks account for about 60%.The contribution margin ratios for springs and shocks are 45% and 35%,respectively.Grayson's fixed costs average $450,000 per month.
-Grayson's monthly break-even point expressed in sales dollars is: (Round the answer to the nearest dollar. )

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to find the total amount of sales dollars needed to cover the fixed costs and variable costs. 
Let S = Sales revenue in dollars. 
0.4S is the revenue from springs, and 0.6S is the revenue from shocks. 
The contribution margin for each product is found by subtracting the variable cost from the selling price. 
For springs, the contribution margin ratio is 45%, so the variable cost is 55% of the selling price, or 0.55(0.4S) = 0.22S. 
For shocks, the contribution margin ratio is 35%, so the variable cost is 65% of the selling price, or 0.65(0.6S) = 0.39S. 
Add up both the variable costs:
Variable Costs = 0.22S + 0.39S = 0.61S
The break-even point is where we make enough sales to cover the total costs. 
0.61S + 450,000 = S 
Therefore, 0.39S = 450,000 
S = 1,153846.15 
So the break-even point is $1,153,846 rounded to the nearest dollar. Choice C is the right option.

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