Asked by Ninh Thi Thuy Trang on Jun 27, 2024
Verified
Last year, Black Company reported sales of $640,000, a contribution margin of $160,000, and a net loss of $40,000. Based on this information, the break-even point in total sales dollars was:
A) $640,000.
B) $960,000.
C) $800,000.
D) $480,000.
Break-Even Point
The point at which the amount produced or sold results in total income matching total costs, leading to neither a profit nor a loss.
Net Loss
The amount by which expenses exceed revenues over a specific period, indicating a negative financial performance.
- Ascertain and figure out the break-even threshold in units and in financial terms.
- Compute and elucidate the margin of safety.
Verified Answer
PG
Paulina GandaraJul 01, 2024
Final Answer :
C
Explanation :
The break-even point can be calculated by dividing the fixed costs by the contribution margin ratio (contribution margin divided by total sales). We don't have the fixed costs, but we can use the information provided to back into the break-even point.
Contribution margin ratio = contribution margin / total sales = $160,000 / $640,000 = 0.25
To break even, the net loss of $40,000 would need to be covered by the contribution margin:
$40,000 / 0.25 = $160,000
Therefore, the break-even point in total sales dollars is $640,000 (last year's sales) plus the amount needed to cover the net loss:
$640,000 + $160,000 = $800,000
So the correct answer is choice C, $800,000.
Contribution margin ratio = contribution margin / total sales = $160,000 / $640,000 = 0.25
To break even, the net loss of $40,000 would need to be covered by the contribution margin:
$40,000 / 0.25 = $160,000
Therefore, the break-even point in total sales dollars is $640,000 (last year's sales) plus the amount needed to cover the net loss:
$640,000 + $160,000 = $800,000
So the correct answer is choice C, $800,000.
Learning Objectives
- Ascertain and figure out the break-even threshold in units and in financial terms.
- Compute and elucidate the margin of safety.
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