A contracting business has the following monthly expenses: rent $3,500, utilities $800, insurance $2,200, equipment payments $4,100, and salaries $18,000. What is the minimum monthly revenue needed to break even?
Correct Answer
B) $28,600
Total monthly fixed expenses = $3,500 + $800 + $2,200 + $4,100 + $18,000 = $28,600. This represents the minimum revenue needed to cover fixed costs before considering variable costs and profit.
Why This Is the Correct Answer
The break-even point represents the minimum revenue needed to cover all fixed expenses without generating profit or loss. To find this, we must add all monthly fixed expenses: rent, utilities, insurance, equipment payments, and salaries. The sum of $3,500 + $800 + $2,200 + $4,100 + $18,000 equals $28,600. This is the exact amount needed to cover all fixed costs before considering any variable costs or profit margin.
Why the Other Options Are Wrong
Option A: $26,400
$31,900 exceeds the break-even point by $3,300, which would represent profit above the minimum revenue needed to cover fixed expenses.
Option C: $34,200
$34,200 is significantly higher than break-even by $5,600, representing substantial profit margin rather than the minimum revenue requirement.
Memory Technique
Remember RUIES: Rent, Utilities, Insurance, Equipment, Salaries - these are the typical fixed costs that must be covered to break even in any contracting business.
Reference Hint
Business and Finance chapter, specifically sections on break-even analysis and fixed vs. variable costs in contractor business operations.
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