Suppose the break-even point for revenue for Knitwear Inc. is $1 000 000. Fixed costs are $400 000. Compute the contribution margin percentage.

Question

Quizplus · Accepted Answer

Contribution margin percentage = (Revenue - Variable Costs) / Revenue

At the break-even point, revenue = $1 000 000.

We don't have information about the variable costs, so we cannot calculate the exact contribution margin percentage.

However, we can use the formula for the break-even point to find the total costs at that point:
Total Costs = Fixed Costs + Variable Costs
$1 000 000 = Fixed Costs + Variable Costs
$1 000 000 = $400 000 + Variable Costs
Variable Costs = $600 000

Now we can use this information to calculate the contribution margin percentage:
Contribution Margin Percentage = (Revenue - Variable Costs) / Revenue
Contribution Margin Percentage = ($1 000 000 - $600 000) / $1 000 000
Contribution Margin Percentage = 0.4 or 40%

Therefore, the best choice is B, with an explanation that the contribution margin percentage is 40%.

Suppose the Break-Even Point for Revenue for Knitwear Inc