MANAGEMENT

Detailed explanation-1: -Contribution Margin Ratio That is, for each dollar of sales, there is a USD 0.40 contribution to covering fixed costs and generating net income. The break-even volume of sales is USD 100, 000 (5, 000 units at USD 20 per unit). At this level of sales, fixed costs plus variable costs equal sales revenue.

Detailed explanation-2: -To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.

Detailed explanation-3: -Because the break-even point is determined by total cost, revenues do not directly affect the break-even point. Sales revenues do, however, determine whether a company actually reaches its break-even point. If revenues are less than total cost, a company does not reach the break-even point, which results in a loss.