Question

In: Accounting

Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000,...

Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. What is the break even point in sales?

610000
520000
650000
none of the above

Solutions

Expert Solution

Solution:

Given data:

*Current sales = $6,00,000

*variable cost =80% of sales

=6,00,000*80%

=4,80,000

*Fixed cost =$1,30,000

Computation of Break even point (BEP) in Sales:

Formula: Fixed cost / Profit Volume(PV) ratio

Working Notes:

* PV Ratio = Contribution / Sales

*Contribution = Sales-Variable cost

Computation of contribution:

*Contribuition = sales- variable cost

                            = 6,00,000-4,80,000

=1,20,000

*Pv ratio            = Contribution / Sales

=1,20,000/6,00,000

=0.2*100

                        =20%

Break even point in Sales = Fixed cost / Profit Volume(PV) ratio

= 1,30,000/20%

=6,50,000

Therfore Breakeven point in sales = 6,50,000

So,option (C) is correct.

ekkarill92 answered 1 year ago
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