Break-even point using contribution margin ratio

Steps:

• Calculate budgeted sales revenue: Profits + Fixed costs + Variable costs = $88,000 +$120,000 + $52,000 =$260,000.
• Compute contribution margin: Budgeted sales - Variable costs = $260,000 -$52,000 = $208,000.
• Determine contribution margin ratio: $208,000 /$260,000 = 0.8 (80%).
• Find break-even sales: Fixed costs / Contribution margin ratio = $120,000 / 0.8 =$150,000.

Why B is correct:

• Break-even sales revenue equals fixed costs divided by contribution margin ratio, per cost-volume-profit analysis.

Why the others are wrong:

• A confuses fixed costs with break-even sales.
• C adds fixed costs and profits without adjusting for variable costs.
• D equals contribution margin, not break-even point.

Final answer: B