A company has total fixed costs of $120,000 and a contribution margin ratio of 20%. The total sales necessary to break even are
A) $480,000.
B) $600,000.
C) $150,000.
D) $144,000.

Question

Quizplus · Accepted Answer

The break-even point is the level of sales at which total revenue equals total expenses, resulting in zero profit.

We can calculate the break-even point using the following formula:

Break-even point = Total fixed costs / Contribution margin ratio

Plugging in the given values, we get:

Break-even point = $120,000 / 0.20 = $600,000

Therefore, the total sales necessary to break even are $600,000.

Choice B is the correct answer.

A Company Has Total Fixed Costs of $120,000 and a Contribution