Question

Liu Sales has two store locations. Sanford has fixed costs of $144,000 per month and a contribution margin ratio of 35%. Orlando has fixed costs of $300,000 per month and a contribution margin ratio of 65%. At what sales volume would the two stores have equal profits or losses?

A. $520,000.

B. $444,000

C. $1,120,000

D. N/A

Answer 1

Answer = $520,000

Profit = Sales – Variable expenses – Fixed Cost

Profit = Contribution Margin – Fixed Cost

Profit = (Sales * Contribution Margin Ratio) – Fixed Cost

Let sales at which the profit is same = x

Profit for Sanford = (x * 35%) – 144,000

Profit for Orlando = (x * 65%) – 300,000

According to Question, Profit is same. So,

Profit for Sanford = Profit for Orlando

(x * 35%) – 144,000 = (x * 65%) – 300,000

0.35x – 144,000 = 0.65x – 300,000

300,000 – 144,000 = 0.65x – 0.35x

156,000 = 0.3x

X = $520,000

Sale at which profit will be same = $520,000