What is the maximum percentage of variable costs in relation to sales that a firm could experience and still break even with $5 million revenue, $1 million fixed costs, and $500,000 depreciation? (use the values in dollar)
A)30 percent
B)70 percent
C)80 percent
D)90 percent

Question

Quizplus · Accepted Answer

The break-even point occurs when total costs equal total revenue. Fixed costs, including depreciation, amount to $1.5 million ($1 million + $500,000). With $5 million in revenue, the maximum variable costs can be $3.5 million (since $5 million - $1.5 million = $3.5 million) to break even. Therefore, the maximum percentage of variable costs to sales is 70% ($3.5 million / $5 million).

What Is the Maximum Percentage of Variable Costs in Relation