Calculate the ratio of variable-costs-to-sales for a firm with: $3,000,000 accounting break-even revenues, $1.2 million fixed costs, and $450,000 depreciation.
A)40 percent
B)45 percent
C)55 percent
D)60 percent Break even =

Question

Quizplus · Accepted Answer

The accounting break-even point can be calculated as:

Accounting Break-Even Point = Fixed Costs + Depreciation / Contribution Margin Ratio

Contribution Margin Ratio = 1 - Variable Costs-to-Sales Ratio

We know that the accounting break-even revenue is $3,000,000, fixed costs are $1.2 million, and depreciation is $450,000. Therefore,

$3,000,000 = $1,200,000 + $450,000 / (1 - Variable Costs-to-Sales Ratio)

Solving for the variable-costs-to-sales ratio, we get:

Variable Costs-to-Sales Ratio = 45%

Therefore, the ratio of variable-costs-to-sales for this firm is 45%. Thus, the correct answer is B.

Calculate the Ratio of Variable-Costs-To-Sales for a Firm With: $3,000,000