What is the break-even level of revenues for a firm with $6 million in sales, variable costs of $3.9 million, fixed costs of $1.2 million, and depreciation of $1 million? (use the values in dollar)
A)$3,428,571
B)$6,100,000
C)$6,285,714
D)$6,557,377

Question

Quizplus · Accepted Answer

The formula for calculating breakeven point is:

Breakeven point = Fixed Costs / (Price - Variable Costs per unit)

First, we need to calculate the total variable costs:

Total variable costs = Sales - (Fixed costs + Depreciation)
Total variable costs = $6,000,000 - ($1,200,000 + $1,000,000)
Total variable costs = $3,800,000

Now we can calculate the breakeven point:

Breakeven point = $1,200,000 / ($6,000,000 - $3,800,000)
Breakeven point = $1,200,000 / $2,200,000
Breakeven point = 0.5454

Therefore, the breakeven level of revenues is $6,000,000 * 0.5454 = $3,272,400.

However, this question asks for the level of revenues required to reach the breakeven point, so we need to add that amount to the total costs:

Breakeven revenues = Total costs + Breakeven point
Breakeven revenues = $1,200,000 + $3,272,400
Breakeven revenues = $4,472,400

Therefore, the correct answer is C: $6,285,714.

What Is the Break-Even Level of Revenues for a Firm