Question

Bertie Corporation has two divisions: Retail Division and Wholesale Division. The following data are for the most recent operating period:

	Total Company		Retail Division			Wholesale Division
Sales	$	486,500	$	300,000		$	186,500
Variable expenses	$	137,275	$	72,000		$	65,275
Traceable fixed expenses	$	232,400	$	173,600		$	58,800

The common fixed expenses of the company are $70,600.

The Wholesale Division’s break-even sales is closest to:

Multiple Choice

• $90,462

• $211,192

• $108,615

• $357,538

Answer 1

Answer: $90,462

Explanation

Calculation of Wholesale Division’s break-even sales:

Break-even sales = Fixed expense / Contribution margin ratio

Fixed expense = Traceable fixed expenses = $58,800

Contribution margin ratio = Contribution margin / Sales

Contribution margin = Sales - Variable expenses

= $186,500 - 65,275

= $ 121,225

Hence, Contribution margin ratio = $ 121,225 / $186,500 = 65%

Therefore, Break-even sales = $58,800 / 65%

= $90,462