1. The break-even point in sales for Macy\'s Company is $400,000 and the company

Question

1. The break-even point in sales for Macy's Company is $400,000 and the company's contribution margin ratio is 30%.  If Macy's Company desires an income of $84,000, sales would have to total:
a. $680,000
b. $291,000
c. $736,000
d. $860,000
e. none of the above.
2. In an income statement prepared as an internal report using the variable costing method, variable selling and adminstrative expenses would:
a. not be used.
b. be treated the same as fixed selling and administrative expenses.
c. be used in the computation of net operating income but not in the computation of the contribution margin.
d. be used in the contribution margin.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Break Even Point = Fixed Cost/Contribution Ratio

400000 = Fixed Cost/30%

Fixed Cost = 120000

Sales (Dollars) = (Fixed Cost + Desired Profit)/Contribution Margin Ratio = (120000 + 84000)/30% = 680000

Option A (680000) is the correct answer.

Part B:

Option D (be used in the contribution margin) is correct.

Thanks.

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