Sports-Reps, Inc., represents professional athletes and movie and television stars. The agency had revenue of $12,345,000 last year, with total variable costs of $5,678,700 and fixed costs of $2,192,400.
1. What is the contribution margin ratio for Sports-Reps based on last year's data? What is the break-even point in sales revenue?
2. What was the margin of safety for Sports-Reps last year?
Contribution Margin & Margin of Safety:
The level where the contribution margin is equal to the fixed costs of the company, the sales are said to be at the break-even point which indicates no profit and no loss. Any sales above this point represent the margin of safety i.e the sales level that result in a safety margin (profit) before reaching the no profit no loss level and only losses below that point.
Answer and Explanation: 1
|Contribution margin ratio||54%|
|Break-even point in sales revenue||$4,060,000|
Sports-Reps, Inc. reported that...
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fromChapter 4 / Lesson 3
Performing a break-even analysis can help you make decisions regarding how much of your product or service you need to sell to make a profit. In this lesson, you'll learn what a break-even analysis is and how it is calculated.