Liu Sales has two store locations. Sanford has fixed costs of $285,000 per month and a contribution margin ratio of 30%. Orlando has fixed costs of $540,000 per month and a contribution margin ratio of 70%. At what sales volume would the two stores have equal profits or losses?

a. $637,500.

b. $825,000.

c. $1,717,500.

d. Cannot determine with the information given.

Question

Business

Jaylon Chan

12 April, 17:26

Liu Sales has two store locations. Sanford has fixed costs of $285,000 per month and a contribution margin ratio of 30%. Orlando has fixed costs of $540,000 per month and a contribution margin ratio of 70%. At what sales volume would the two stores have equal profits or losses?

a. $637,500.

b. $825,000.

c. $1,717,500.

d. Cannot determine with the information given.

+1

Answers (1)

Know the Answer?

Wagner · Answer 1

a. $637,500.

Explanation:

we solve dconsidering the target profit formula shoul give the same value on both companies:

(285,000 + profit) / 0.3 = (540,000 + profit) / 0.70

(285,000 + p) x 7/3 = 540,000 + p

665,000 + 7/3p = 540,000 + p

p = (540,000 - 665,000) / (4/3) = - 93,750

Now we solve the target profit (in this case "loss") to know the sales volume.

(285,000 - 93,750) / 0.3 = 637,500

(540,000 - 93,750) / 0.7 = 637,500