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Break-even point in sales dollars

You have developed the following income statement for your corporation. It represents the most recent year's operations, which ended yesterday.

Sales $45,750,000

Variable costs 22,800,000

Revenue before fixed costs $22,950,000

Fixed costs 9,200,000

EBIT $13,750,000

Interest expense 1,350,000

Earnings before taxes $12,400,000

Taxes at 50% 6,200,000

Net income $ 6,200,000

Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions:

a. What is the firm's break-even point in sales dollars?

b. If sales should increase by 25 percent, by what percent would earnings before taxes (and net income) increase?

Solution Preview

a. Breakeven sales = Fixed cost/contribution margin ratio
Contribution margin ratio = 22,950,000/45,750,000=50.16%
Breakeven sales = ...

Solution Summary

The solution explains how to calculate the break-even point in sales dollars and the increase in EBIT given an increase in sales