Question

Therrell Corporation has two divisions: Bulb Division and Seed Division. The following report is for the most recent operating period: Bulb Division Seed Division Sales $ 231,000 $ 154,000 Variable expenses $ 60,060 $ 32,340 Traceable fixed expenses $ 161,760 $ 70,840 Common fixed expense $ 29,460 $ 19,640 The common fixed expenses have been allocated to the divisions on the basis of sales. Required:

a. What is the Bulb Division’s break-even in sales dollars?

b. What is the Seed Division’s break-even in sales dollars?

c. What is the company’s overall break-even in sales dollars?

Answer 1

a.

Break even sales = Traceable fixed expenses / Contribution margin ratio

Contribution margin ratio = Contribution margin / Sales

Contribution margin ratio = $170,940($231,000-60,060) / $231,000 = 74%

Break even sales = $161,760 / 74% = $218,594.595 or $218,595

b.

Break even sales = Traceable fixed expenses / Contribution margin ratio

Contribution margin ratio = Contribution margin / Sales

Contribution margin ratio = $121,660($154,000-32,340) / $154,000 = 79%

Break even sales = $70,840 / 79% = $89,670.8861 or $89,671

c.

Company overall break even sales = Total fixed expenses / Contribution margin ratio

Contribution margin ratio = $170,940+121,660 / $231,000+154,000

Contribution margin ratio = $292,600 / $385,000 = 76%

Company overall break even sales = ($161,760+70,840+29,460+19,640) / 76%

Company overall break even sales = $281,700 / 76% = $370,657.895 or $370,656