Sabv Corporation's break-even-point in sales is $970,000, and its variable expenses are 80% of sales. If the company lost $47,000 last year, sales must have amounted to:

Sabv Corporation's break-even-point in sales is $970,000, and its variable expenses are 80% of sales. If the company lost $47,000 last year, sales must have amounted to:

Multiple Choice

• $923,000
• $729,000
• $876,000
• $735,000

  Correct

Explanation

CM ratio = 1 – Variable expense ratio

CM ratio = 1 – 0.80 = 0.20

Dollar sales to break even = Fixed expenses ÷ CM ratio

$970,000 = Fixed expenses ÷ 0.20

Fixed expenses = $970,000 × 0.20 = $194,000

Profit = (CM ratio × Sales) – Fixed expenses

-$47,000 = (0.20 × Sales) – $194,000

Sales = ($194,000 – $47,000) ÷ 0.20 = $735,000