Scott Company's variable expenses are 72% of sales.The company's break-even point in sales is $2,450,000.If sales are $60,000 below the break-even point,what operating loss would the company report?
A) $43,200.
B) $60,000.
C) $16,800.
D) Cannot be determined from the data given.

Question

Quizplus · Accepted Answer

First, we need to calculate the company's total fixed expenses:

Break-even point = Total fixed expenses / (1 - Variable expenses as a decimal)
$2,450,000 = Fixed expenses / (1 - 0.72)
Fixed expenses = $8,750,000

Next, we need to calculate the sales level that results in an operating loss:

Operating loss = (Sales level - Break-even point) x Variable expenses
Operating loss = ($2,390,000) x 0.72
Operating loss = $1,720,800

Therefore, if sales are $60,000 below the break-even point, the operating loss would be $1,720,800. Option C is correct.

Scott Company's Variable Expenses Are 72% of Sales