Question

In: Accounting

Last month Empire Company had a $40,850 profit on sales of $301,000. Fixed costs are $88,580...

Last month Empire Company had a $40,850 profit on sales of $301,000. Fixed costs are $88,580 a month. By how much would sales be able to decrease for Empire to still break even?

A. $95,000

B. $341,850

C. $206,000

D. $129,430

Solutions

Expert Solution

Contribution Margin = Fixed Expenses + Profit

                                 = $88,580 + $40,850 = $129,430

Variable Expenses = Sales - Contribution Margin

                                  = $3,01,000 - $1,29,430 = $171,570

Total $

Sales

            3,01,000.00

Less: Variable Expenses

            1,71,570.00

Contribution Margin

            1,29,430.00

Fixed Expenses

               88,580.00

Profit

               40,850.00

Profit Volume Ratio = Contribution Margin / Sales = $1,29,430 / $3,01,000 = 0.43 or 43%

Break Even Sales = Fixed Cost / PV Ratio = $88,580 / 0.43 = $206,000

Therefore, the correct option is Option C: $206,000

ekkarill92 answered 7 months ago
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