If fixed costs are $750,000 and variable costs are 60% of sales ($1,875,000), what is the break-even point in sales dollars?
To calculate the break-even point in sales dollars, we need to find the sales volume at which the total revenue equals the total cost, resulting in zero profit or loss. The break-even point can be determined by using the formula:
Break-even point = Fixed costs / (1 - Variable cost percentage)
Given that fixed costs are $750,000 and variable costs are 60% of sales ($1,875,000), we can proceed with the calculation.
Step 1: Calculate the variable cost component:
Variable costs = Sales * Variable cost percentage
Substituting the given values:
$1,875,000 = Sales * 0.6
Step 2: Solve for sales:
Sales = $1,875,000 / 0.6
Sales = $3,125,000
The break-even point in sales dollars is $3,125,000. This means that the company needs to generate at least $3,125,000 in sales to cover all fixed costs and variable costs, with no profit or loss.