Question

Tanaka company has fixed costs of $14,000. their contribution margin ratio is 40% and ratio of selling expenses to sales is 20%. what is the breakeven point in sales dollars?

Answer 1

The break even point refers to the point at which a company sales revenues equals the expense costs used for the production of the products sold.
Mathematically, break even point = Fixed cost / [Price - variable cost].
The value of [price - variable cost] is called contribution margin, thus the equation becomes:
Break even point = Fixed cost/ contribution margin
From the question given:
Fixed cost = $14,000.00
Contribution margin = 40% = 0.4
Slotting the given values into our break even equation:
Break even point = 14,000/0.4 = 35,000
Thus, the break even point is $35,000.