Homework Answers
Answer: Following steps should be followed for calculation of break even sales in dollars
Step 1 Calculate Contribution that is Contribution = Sales - Variable cost
Step 2 Calculate Contribution margin ratio that is = ( Contribution/Sales) x 100
Step 3 Calculate break even sales in dollars that is = Fixed Expenses/Contribution margin ratio
Detailed workings to show steps to be followed
Step 1 Calculation of Contribution
Sales = $10 Million
Variable cost = 46 Million
Contribution = Sales - Variable expense = $10 Million - $6 Million = $4 Million
Step 2 Calculation of Contribution margin ratio
Contribution margin ratio = ( Contribution/Sales) x 100
= ($4 million/$10 million) x 100
= 40%
Step 3 Calculation of Break even sales
Break even sales = Fixed Expenses/Contribution margin ratio
= $2.4 million/40%
= $6 Million
So the expected break even sales in 2019 is $6 Million
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