CPA Business Environment and Concepts (BEC) Help » Operations Management: Budgeting » Breakeven Formula
Explanation:

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.

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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?


Explanation:

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?


Explanation:

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?


Explanation:

The margin of safety is generally expressed as either dollars or a percentage and is the excess of sales over breakeven sales.


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