Question

In: Accounting

Last year Easton Corporation reported sales of $810,000, a contribution margin ratio of 40% and a...

Last year Easton Corporation reported sales of $810,000, a contribution margin ratio of 40% and a net loss of $33,000. Based on this information, the break-even point was:

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Expert Solution

Solution:

The formula for calculating the Net Profit or loss is

Profit / Loss = (Contribution Margin Ratio × Sales) − Fixed expenses

As per the information given in the question we have

Contribution Margin Ratio = 40 % = 0.40 ; Sales = $ 810,000    ; Net Loss = - $ 33,000

Applying the above information in the formula we have

- $ 33,000 = ( 0.40 * $ 810,000 ) – Fixed Expenses

- $ 33,000 + Fixed Expenses = 0.40 * $ 810,000

- $ 33,000 + Fixed Expenses = $ 324,000

Fixed Expenses = $ 324,000 + $ 33,000

Fixed Expenses = $ 357,000

Calculation of Break - even point :

The formula for calculating the Break even point is = Fixed Expenses / Contribution Margin Ratio

As per the information available we have

Contribution Margin Ratio = 40 % = 0.40 ; Fixed Expenses = $ 357,000   ;

Applying the above information in the formula we have

= $ 357,000 / 0.40

= $ 892,500

Thus the Break even point is = $ 892,500

ekkarill92 answered 1 year ago
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