The following monthly data are available for the Phelps Company:
$\begin{array}{|l|r|r|r|r|}
\hline & \text { Product A } & \text { Product B } & \text { Product C } & \text { Total } \
\hline \text { Sales } & \$ 150,000 & \$ 130,000 & \$ 90,000 & \$ 370,000 \
\hline \text { Variable } & 91,000& 104,000 & 27,000 & 222,000 \\text { expenses } & & & & \
\hline \text { Contribution } & \$ 59,000 & \$ 26,000 & \$ 63,000 & 148,000 \\text { margin } & & & & \
\hline \text { Fixed expenses } & & & & 55,000 \
\hline & & & & \$ 93,000 \
\hline
\end{array}$
What are the break-even sales for the month for the company?
A) $91,667.
B) $203,000.
C) $148,000.
D) $137,500.

Question

Quizplus · Accepted Answer

The break-even sales point is where total sales equal total expenses (both variable and fixed). To find the break-even sales, we first calculate the contribution margin ratio (total contribution margin divided by total sales), then use it to find the sales level needed to cover all expenses.Total contribution margin = $148,000Total sales = $370,000Contribution margin ratio = $148,000 / $370,000 = 0.4Total fixed expenses = $55,000Break-even sales = Total fixed expenses / Contribution margin ratio= $55,000 / 0.4 = $137,500

The Following Monthly Data Are Available for the Phelps Company