Dave's Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $640,000 and a contribution margin of 80% of revenues.

1) Compute Dave's monthly breakeven sales in dollars. Use the contribution margin ratio approach.

2) Use contributio margin income statements to compute Dave's monthly operating income or operating loss if revenues are $500,000 and if they are $1,000,000.


I don't know how we can get the contribution margin? I can't figure out the revenue.


Thanks for the help.

sales price x .8 = cm

sales price x .8 - 640,000 = 0
sales price x .8 = 640,000
sales price = 800,000

therefore, BE in sales is $800,000

Thanks so much for helping me out! I understand how you did question 1.

I can't understand how to calculate the variable cost and fixed cost for question 2.

Thanks again!

Fixed Costs have been stated at $640,000

As for Variable Costs, they would be equal to 20% of the sales price.

Why 20%?

Because 80% of Sales Price is the Contribution Margin.