CPA Business Environment and Concepts (BEC) › Breakeven Formula
Breakeven analysis assumes that over the relevant range:
Unit revenues are nonlinear
Unit variable costs are unchanged
Total fixed costs are nonlinear
Total costs are unchanged
Breakeven analysis assumes that all variable costs and revenues are constant on a per-unit basis and are linear over a relevant range. Fixed costs in total are constant.
ABC company's breakeven point was $780,000. Variable expenses averaged 60% of sales, and the margin of safety was $130,000. What was ABC's contribution margin?
$364,000
$546,000
$1,300,000
$910,000
The margin of safety is the excess of sales over break-even sales. Assuming variable costs are 60% of selling price, contribution margin may be computed at 40% of selling price as 40% * $780,000 + 40% * $130,000.
A company has total sales of $80,000, total variable costs of $20,000, and total fixed costs of $30,000. What is the breakeven level in sales dollars?
$50,000
$30,000
$40,000
$80,000
The contribution margin is sales minus variable costs (80,000-20,000) = 60,000. Then, 60,000/80,000=75%. Then, breakeven is total fixed costs of $30,000/75%=$40,000.
A product has sales of $200,000, a contribution margin of 20%, and a margin of safety of $80,000. What is the product's fixed cost?
$16,000
$96,000
$80,000
$24,000
($200,000 - $80,000) * 20%
What is the formula for breakeven point in units?
Total FC/CM per Unit
Total VC/CM per Unit
Total Costs/CM per Unit
CM per Unit/Total FC
This is the formula for breakeven point in units.
How does the margin of safety relate to breakeven in units or sales? It is:
The excess of sales over breakeven sales
A measure of profitability
The excess of breakeven sales over sales
Unrelated
The margin of safety is generally expressed as either dollars or a percentage and is the excess of sales over breakeven sales.