Step Company has total variable costs of 80% of total revenues and fixed costs of $20 million per year.What is the break-even point expressed in total revenue dollars?
A) $10 million
B) $12.5 million
C) $20 million
D) $100 million

Question

Quizplus · Accepted Answer

The break-even point in total revenue dollars is calculated by dividing the total fixed costs by the contribution margin ratio. The contribution margin ratio is 1 minus the variable cost ratio. Here, the variable cost ratio is 80%, so the contribution margin ratio is 20% (100% - 80%). The fixed costs are $20 million. Therefore, the break-even point is $20 million / 20% = $100 million.

Step Company Has Total Variable Costs of 80% of Total