Question

1. A company forecasts sales to be $800,000 for 2017. Fixed costs are $210,000 and the contribution margin percentage for the company is 0.30 (30%). The break-even point in dollars for the firm is:

   		$240,000
   		$450,000
   		$700,000
   		$300,000

Answer 1

For calculating break-even point , we must first calculate Profit-Volume ratio, i.e.,

PV ratio= (Contribution margin/sales)*100

                                OR

            = Contribution as percentage of sales

It is given as 30% in the question.

Now, we have formula of,

PV ratio= (Fixed cost/ Break-even point)*100

we have fixed cost as $210,000 and PV ratio of 30%

Putting all values in the formula, we get,

30 = (210000/Break-even point)*100

By transferring values to right hand side,

Break-even point= (210,000/30)*100

Break-even point= $700,000

Hence, the correct option is $700.000.