Question

Tommy's Tile Service is planning on purchasing new tile cleaning equipment that will improve their ability to remove tough stains from ceramic tiles. The company's contribution margin is 25% and its current break-even point is $331,200 in sales revenue. Purchasing the new equipment will increase fixed costs by $8,000. Required: 1. Determine the company's current fixed costs. 2. Determine the company's new break-even point in sales. 3. After the purchase of the equipment, how much revenue does the company need to generate a profit of $105,000?

Answer 1

1) fixed cost= break even point* contribution %

= 331,200*25%

= 82,800

2) break even point= fixed cost/ contribution%

= (82800+8000)/25%

= 363,200

3) sales= profit+ fixed cost/ contribution %

= 105,000+(82800+8000)/25%

= 195,800/25%

Sales = 783,200