What is the break-even point in sales for a café with fixed costs of $52,000, variable costs of $85,000, and total sales of $210,000?

What is the break-even point in sales for a café with fixed costs of $52,000, variable costs of $85,000, and total sales of $210,000?

• A. 86,666.66
• B. 113,333.33
• C. 130,000.00
• D. 473,000.00

Answer: (A)

The key idea is that break-even sales are reached when the contribution from sales just covers fixed costs. Use the contribution margin ratio, which is (Sales − Variable costs) divided by Sales. Here, contribution margin = 210,000 − 85,000 = 125,000, and the contribution margin ratio = 125,000 / 210,000 ≈ 0.595 (about 59.5%). Break-even sales = Fixed costs / CM ratio = 52,000 / 0.595 ≈ 87,360. If you round the CM ratio to 0.60 for a quick estimate, break-even sales ≈ 52,000 / 0.60 ≈ 86,666.67, which matches the closest option. The other values would imply different margins and don’t align with the calculated break-even point.

The key idea is that break-even sales are reached when the contribution from sales just covers fixed costs. Use the contribution margin ratio, which is (Sales − Variable costs) divided by Sales.

Here, contribution margin = 210,000 − 85,000 = 125,000, and the contribution margin ratio = 125,000 / 210,000 ≈ 0.595 (about 59.5%). Break-even sales = Fixed costs / CM ratio = 52,000 / 0.595 ≈ 87,360.

If you round the CM ratio to 0.60 for a quick estimate, break-even sales ≈ 52,000 / 0.60 ≈ 86,666.67, which matches the closest option. The other values would imply different margins and don’t align with the calculated break-even point.