Hogans Corporation has two divisions: Delta and Echo. Data from the most recent month appear below: The company's common fixed expenses total $64,090. The break-even in sales dollars for Echo Division is closest to:
A)$250,143
B)$387,059
C)$173,469
D)$304,265

Question

Hogans Corporation has two divisions: Delta and Echo. Data from the most recent month appear below:  The company's common fixed expenses total $64,090. The break-even in sales dollars for Echo Division is closest to:
A)$250,143 
B)$387,059 
C)$173,469 
D)$304,265

Quizplus · Accepted Answer

To find the break-even point for Echo Division, we need to first calculate the contribution margin ratio for the division:

Contribution margin ratio = (Total sales - Variable expenses) ÷ Total sales

For Echo Division:
Total sales = $230,000
Variable expenses = $138,000 + $36,000 = $174,000 (direct materials + direct labor)
Contribution margin ratio = ($230,000 - $174,000) ÷ $230,000 = 0.24

Next, we can use the contribution margin ratio to calculate the break-even point in sales dollars for Echo Division:

Break-even point = (Fixed expenses ÷ Contribution margin ratio) + Total common fixed expenses

Break-even point = ($64,090 ÷ 0.24) + $64,090 = $389,542.50

Therefore, the closest option is C ($173,469).

Hogans Corporation Has Two Divisions: Delta and Echo