Break-even point in sales value given fixed costs of 60,000 and a PV ratio of 0.50 is

Break-even point in sales value given fixed costs of 60,000 and a PV ratio of 0.50 is

• A. 120,000
• B. 60,000
• C. 180,000
• D. 240,000

Answer: (A)

The key idea is that break-even in sales value depends on how much of each sales dollar escapes as contribution to cover fixed costs. This is captured by the PV ratio (profit–volume ratio). A PV ratio of 0.50 means 50% of every sales dollar becomes contribution. To break even, the fixed costs must be exactly covered by this contribution, so break-even sales value = fixed costs ÷ PV ratio = 60,000 ÷ 0.50 = 120,000. So, when sales reach 120,000, the contribution equals 60,000 and profit is zero; any higher sales give a profit.

The key idea is that break-even in sales value depends on how much of each sales dollar escapes as contribution to cover fixed costs. This is captured by the PV ratio (profit–volume ratio). A PV ratio of 0.50 means 50% of every sales dollar becomes contribution. To break even, the fixed costs must be exactly covered by this contribution, so break-even sales value = fixed costs ÷ PV ratio = 60,000 ÷ 0.50 = 120,000. So, when sales reach 120,000, the contribution equals 60,000 and profit is zero; any higher sales give a profit.