Challenge company has a variable cost of $7 per unit, net income of $4,000 and a...
Challenge company has a variable cost of $7 per unit, net income of $4,000 and a contribution margin ration of 20%. Answer the following question assuming the contribution margin is $7,000. By what percent can sales decline and the company still breakeven?
Homework Answers
ANSWER:
Current sales = contribution margin/contribution margin ratio
= $7000/20%
= $35000
Fixed expenses = contribution margin - net income
= $7000 - $4000
= $3000
Break even point (dollar sales) = fixed expenses/contribution margin ratio
= $3000/20%
= $15000
therefore,
sales can get declined by $35000 - $15000 = $20000 and still company can break even
therefore,
sales can get declined by $20000/$35000 = 57.14% and the company can still breakeven
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