Answer:
Break-even sales in dollars | $2,112,500 |
Option 1: Break-even sales in dollars | $1,836,957 |
Option 2: Break-even sales in dollars | $1,901,250 |
Calculations:
Break-even sales in dollars = Fixed costs ÷ Contribution margin ratio
= $845,000 ÷ 40%
= $2,112,500
Option - 1: If Variable cost reduced by 10%:
Sales | 100% |
New variable costs [60% - (60% x 10%)] | -54% |
New contribution ratio | 46% |
Break-even sales in dollars = Fixed costs ÷ New Contribution margin ratio
= $845,000 ÷ 46%
= $1,836,957
Option - 2: If Fixed cost reduced by 10%:
New fixed cost = $845,000 - ($845,000 x 10%) = $760,500
Break-even sales in dollars = New Fixed costs ÷ Contribution margin ratio
= $760,500 ÷ 40%
= $1,901,250
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