A company's break -even point in sales is $725,000, and its
variable expenses are 75% of sales. If the company lost $18,100
last year, sales must have amounted to
To find the sales amount, we need to determine the fixed expenses first.
Fixed expenses = Sales - Variable expenses
Fixed expenses = $725,000 - (0.75 * $725,000)
Fixed expenses = $725,000 - $543,750
Fixed expenses = $181,250
Since the company lost $18,100, we can subtract this from the fixed expenses to find the sales amount.
Sales = Fixed expenses + Loss
Sales = $181,250 + $18,100
Sales = $199,350
Therefore, sales must have amounted to $199,350 last year.
To determine the sales amount last year, we can use the break-even analysis formula:
Break-even point = Fixed expenses / (1 - (Variable Expenses/Sales))
Given that the break-even point in sales is $725,000 and variable expenses are 75% of sales, we can calculate the fixed expenses using the formula:
$725,000 = Fixed expenses / (1 - (75% / 100%))
Simplifying the equation:
$725,000 = Fixed expenses / (1 - 0.75)
$725,000 = Fixed expenses / 0.25
Cross-multiplying:
Fixed expenses = $725,000 * 0.25
Fixed expenses = $181,250
Since the company lost $18,100 last year, we can determine the sales amount using the formula:
Sales = Fixed expenses + Variable expenses
Variable expenses = 75% of sales
Variable expenses = 0.75 * Sales
Given that the loss last year was $18,100:
Sales = $181,250 + 0.75 * Sales - $18,100
Rearranging the equation to solve for sales:
0.25 * Sales = $163,150
Sales = $163,150 / 0.25
Calculating the sales amount:
Sales = $652,600
Therefore, the sales amount last year must have amounted to $652,600.