Question

Gardner Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below. Sales $ 1,500,000 Cost of sales: Direct Material $ 250,000 Direct labor 150,000 Variable Overhead 75,000 Fixed Overhead 100,000 575,000 Gross Profit $ 925,000 Selling and G&A Variable 200,000 Fixed 250,000 450,000 Operating Income $ 475,000 The break-even point (rounded to the nearest dollar) for Gardner Corporation for the current year is:

Answer 1

Variable costs = $250,000 + $150,000 + $75,000 + $200,000 = $675,000

Contribution margin ratio = (Sales - Variable costs) / Sales = ($1,500,000 - $675,000) / $1,500,000 = 0.55 or 55%

Break-even point = Fixed costs / Contribution margin ratio = ($100,000 + $250,000) / 0.55 = $636,364