Question

Sabv Corporation's break-even-point in sales is $870,000, and its variable expenses are 75% of sales. If the company lost $37,000 last year, sales must have amounted to:

Multiple Choice

• $833,000

• $796,000

• $722,000

• $615,500

Answer 1

Answer -

Information Given -

Break-even-point in sales = $870000.

Variable expenses = 75% of sales.

Company lost $37000 last year.

.

Calculation of Amount of Sales -

Step - (1) -

Contribution margin ratio = 1 - Variable expense ratio = 1- 0.75 = 0.25.

.

Step - (2) -

Dollar sales to break even = Fixed expenses / Contribution margin ratio

$870000 = Fixed expenses / 0.25

Fixed expenses = $870000 * 0.25 = $217500.

.

Step - (3) -

Profit = (Contribution margin ratio * Sales) - Fixed expenses

-$37000 = (0.25 * Sales) - $217500

Sales = ($217500 - $37000) / 0.25

Sales = $722000.

Hence, Option - (C) is Correct.