Garcia Veterinary Clinic expects the following operating results next year:
Sales (total) $600,000
Variable expenses (total) $120,000
Fixed expenses (total) $300,000
What is Garcia's break-even point next year in sales dollar?
To find the break-even point in sales dollars, we need to determine the level of sales at which Garcia Veterinary Clinic's total expenses equal its total sales. This point represents the level at which the company is neither making a profit nor incurring a loss.
The break-even point in sales dollars can be calculated using the following formula:
Break-even point (sales dollars) = Fixed expenses / (1 - (Variable expenses / Sales))
Let's plug the given values into the formula:
Fixed expenses = $300,000
Variable expenses = $120,000
Sales = $600,000
Break-even point (sales dollars) = $300,000 / (1 - ($120,000 / $600,000))
Now, let's simplify the equation:
Break-even point (sales dollars) = $300,000 / (1 - 0.2)
= $300,000 / 0.8
= $375,000
Therefore, Garcia Veterinary Clinic's break-even point next year in sales dollars is $375,000.