Evergreen Corporation manufactures circuit boards and is in the process of prepa

Question

Evergreen Corporation manufactures circuit boards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.

The break-even point (rounded to the nearest dollar) for Evergreen Corporation for the current year is:

A. $1,865,672.

B. $2,155,172.

C. $1,724,138.

D. $2,625,000.

Sales $3,500,000 Cost of Sales: Direct Material $500,000 Direct Labor $250,000 Variable Overhead $275,000 Fixed overhead $600,000 $1,625,000 Gross Profit $1,875,000 Selling and General & Admin. Exp. Variable 750,000 Fixed 250,000 1,000,000 Operating Income 875,000

Explanation / Answer

Contribution margin = Sales-Variable costs=3500000-500000-250000-275000-750000= $1725000 CM ratio = 1725000/3500000= 49.29% Break-even point = Fixed expenses/CM ratio = (600000+250000)/49.29%= $1724138 Option c is correct

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