Question

Ivanhoe Profiles provides testing services to school districts that wish to assess students’ reading and mathematical abilities. Last year Ivanhoe evaluated 64,100 math tests and 21,367 reading tests. An income statement for last year follows.

		Math Testing				Reading Testing
		Total		Per Unit		Total		Per Unit		Total Company
Sales revenue		$1,730,700		$27		$854,680		$40		$2,585,380
Variable expenses		1,217,900		19		341,872		16		1,559,772
Contribution margin		$512,800		$8		$512,808		$24		1,025,608
Fixed expenses										370,000
Operating income										$655,608

(a)

What is Ivanhoe’s breakeven point in sales dollars? (Use your answer of breakeven units to calculate the breakeven point in dollars. Round Breakeven units and point in dollar to 0 decimal places, e.g. 5,275.)

Answer 1

Ivanhoe’s breakeven point in sales dollars is calculated by using the following formula:

Ivanhoe’s breakeven point in sales dollars = Fixed Cost/ Contribution Margin Ratio

Sale(Given) = $2,585,380

Fixed Cost (Given) = $370,000

Contribution Margin (Given) = $1,025,608

Contribution Margin Ratio = Contribution Margin/Sale*100

= $1,025,608/$2,585,380*100

= 39.67%

Ivanhoe’s breakeven point in sales dollars = $370,000/39.67%

=$932,695