Sarafine, Inc. sells a single product for $20. Variable costs are $8 per unit and fixed costs total $120,000 at a volume level of 5,000 units. Assuming that fixed costs do not change, Sarafine's break-even sales would be:
A) $160,000.
B) $200,000.
C) $300,000.
D) $480,000.
E) None of the answers is correct.

Question

Quizplus · Accepted Answer

The break-even point in sales dollars is calculated by dividing the total fixed costs by the contribution margin ratio. The contribution margin per unit is $20 - $8 = $12. The contribution margin ratio is $12 / $20 = 0.6. Therefore, the break-even sales in dollars is $120,000 / 0.6 = $200,000.