The company has a variable cost ratio of 65% and monthly fixed costs of $91,000. What is the company's break-even point in terms of sales dollars?

I say:

91,000 / 0.65 = $140,000

The company has a variable cost ratio of 65% and monthly fixed costs of $91,000. What is the company's break-even point in terms of sales dollars?

FC / CM Percentage

THE CM percentage in this case would be 35%. If you have 100% at sales, less 65% for VC, that leaves the remaining 35% as the contribution margin (CM)

91,000 / 0.35 = 260,000

We can also verify the numbers as well if we want:

If Sales are 260,000
VC should be 65% of that, so 169,000

That would leave us with a CM of 91,000 (which makes up the remaining 35% of Sales), Plus, if we take off the 91,000 in Fixed Costs, we have a 0 Net Income.

Quote:

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Originally Posted by CaptainForest

The company has a variable cost ratio of 65% and monthly fixed costs of $91,000. What is the company's break-even point in terms of sales dollars?

FC / CM Percentage

THE CM percentage in this case would be 35%. If you have 100% at sales, less 65% for VC, that leaves the remaining 35% as the contribution margin (CM)

91,000 / 0.35 = 260,000

We can also verify the numbers as well if we want:

If Sales are 260,000
VC should be 65% of that, so 169,000

That would leave us with a CM of 91,000 (which makes up the remaining 35% of Sales), Plus, if we take off the 91,000 in Fixed Costs, we have a 0 Net Income.

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Thanks again. The CM percentage is figured based on 100% which is a factor I did not understand.

You're welcome