Fixed costs including depreciation have increased at Leverage, Inc.from $4 million to $6 million in an effort to reduce variable costs.What must the new variable-cost percentage be to leave break-even at $20 million?
A)60 percent
B)65 percent
C)70 percent
D)75 percent

Question

Quizplus · Accepted Answer

To find the new variable-cost percentage, we use the break-even formula: Break-even sales = Fixed Costs / (1 - Variable Cost Percentage). With fixed costs at $6 million and break-even sales at $20 million, we solve for the variable cost percentage: $20 million = $6 million / (1 - Variable Cost Percentage). Solving gives a variable cost percentage of 70%.

Fixed Costs Including Depreciation Have Increased at Leverage, Inc