Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget.The pro forma income statement for the current year is presented below. $$\begin{array} { | l | l | l | }
\hline \text { Sales } & & \$ 3,500,000 \
\hline \text { Cost of sales: } & & \
\hline \text { Direct Material } & \$ 500,000 & \
\hline \text { Direct labor } & 250,000 & \
\hline \text { Variable Overhead } & 275,000 & \
\hline \text { Fiked Overhead } & \underline { 600,000 } & 1,625,000 \
\hline \text { Gross Profit } & & \$ 1,876,000 \
\hline \text { Selling and General \& Admin. Exp. } & & \
\hline \text { Variable } & 750,000 & \
\hline \text { Fiked } & 250,000 & 1,000,000 \
\hline \text { Operating Income } & & \$ 875,000 \
\hline
\end{array}$$
The break-even point (rounded to the nearest dollar)for Evergreen Corporation for the current year is:
A) $2,625,000.
B) $1,865,672.
C) $1,724,138.
D) $2,155,172.

Question

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget.The pro forma income statement for the current year is presented below. $$\begin{array} { | l | l | l | } 
\hline \text { Sales } & & \$ 3,500,000 \
\hline \text { Cost of sales: } & & \
\hline \text { Direct Material } & \$ 500,000 & \
\hline \text { Direct labor } & 250,000 & \
\hline \text { Variable Overhead } & 275,000 & \
\hline \text { Fiked Overhead } & \underline { 600,000 } & 1,625,000 \
\hline \text { Gross Profit } & & \$ 1,876,000 \
\hline \text { Selling and General \& Admin. Exp. } & & \
\hline \text { Variable } & 750,000 & \
\hline \text { Fiked } & 250,000 & 1,000,000 \
\hline \text { Operating Income } & & \$ 875,000 \
\hline
\end{array}$$
The break-even point (rounded to the nearest dollar)for Evergreen Corporation for the current year is:
A) $2,625,000.
B) $1,865,672.
C) $1,724,138.
D) $2,155,172.

Quizplus · Accepted Answer

The break-even point is the level of sales at which the company's total revenue equals its total costs. To calculate the break-even point, we can use the following formula:Break-even point = Fixed costs / (Contribution margin ratio)The contribution margin ratio is calculated as follows:Contribution margin ratio = (Sales - Variable costs) / SalesFor Evergreen Corporation, the fixed costs are $600,000 + $250,000 = $850,000. The variable costs are $500,000 + $250,000 + $275,000 = $1,025,000. The sales are $3,500,000. Therefore, the contribution margin ratio is:Contribution margin ratio = ($3,500,000 - $1,025,000) / $3,500,000 = 0.7143Therefore, the break-even point is:Break-even point = $850,000 / 0.7143 = $1,724,138Therefore, the correct answer is C) $1,724,138.

Evergreen Corporation Manufactures Circuit Boards and Is in the Process