Question

Saby Corporation's break-even-point in sales is $800,000, and its variable expenses are 70% of sales. If the company lost $30,000 last year, sales must have amounted to: Multiple Choice Ο $770,000 Ο $740,000 Ο $700,000 Ο $530,000

Answer 1

Ans. 1	Option 3rd $700,000
	*Explanations and Calculations:
	Variable expenses are 70% of sales it means that the contribution margin ratio
	is 30% (i.e. 1 - 70%) of sales.
	We have the contribution margin ratio 30%, now we can calculate the fixed cost.
	Break even point in sales = Fixed cost / Contribution margin ratio
	$800,000 = Fixed cost / 30%
	Fixed cost = $800,000 * 30%
	$240,000
	*Calculations for total contribution margin :
	Contribution margin = Fixed cost + Net loss
	$240,000 + (-$30,000)
	$240,000 - $30,000
	$210,000
	*Calcuation of sales:
	Sales = Contribution margin / Contribution margin ratio
	$210,000 / 30%
	$700,000
Ans. 2	Option 4th   $842,500
	Step 1 : Calculations for contribution margin :
	Contribution margin = Sales * Contribution margin ratio
	$770,000 * 40%
	$308,000
	Fixed cost =   Contribution margin - Net loss
	$308,000 - (-$29,000)
	$308,000 + $29,000
	$337,000
	Break even point in sales = Fixed cost / Contribution margin ratio
	$337,000 / 40%
	$842,500