A contractor has $120,000 of annual fixed overhead and a 30% contribution-margin ratio. What annual sales level is required to break even?
- A$120,000
- B$520,000
- C$36,000
- $400,000
Why D is correct
The best answer is: $400,000. Break-even sales equal fixed overhead divided by the contribution-margin ratio: $120,000 ÷ 0.30 = $400,000. At that sales level, the $120,000 contribution covers fixed overhead with no remaining profit. The other values result from using the wrong base, operation, percentage, or cash-flow treatment.