Question

Artis Sales has two store locations. Store A has fixed costs of $170,000 per month and a varia 20%. At what sales volume would the two stores have equal profits or losses? $280,000 $480,000. O O $533,333 O Cannot determine with the information given. ©2020 McGraw-Hill Edu

Answer 1

Answer

• Equal profit level would be where their profit matches.
• Variable cost is 70% of sales for Store A meaning that Contribution margin is 30% of sales.
• Variable cost is 20% of sales for Store B meaning Contribution margin is 80% of sales.
• If Sales be considered as $x, then
  Store A Profit = 0.3x - $ 170000
  Store B profit = 0.8x - $ 310000
• Hence,
  0.3x – 170000 = 0.8x – 310000
  310000 – 170000 = 0.8x – 0.3x
  140000 = 0.5x
  140000 / 0.5 = x
  x = $ 280,000
• Correct Answer = Option #1: $ 280,000 sale level, the two store would have equal profits.