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Vault-Tec has annual fixed costs, excluding depreciation, of $1,000,000, and variable costs that are 75% of sales. If depreciation is $250,000, what is Vault-Tec's break-even level of sales?

A. $5,000,000
B. $4,000,000
C. $6,000,000
D. $5,333,333

Answer :

Final answer:

In this scenario, Vault-Tec's Break-Even Analysis level of sales, considering both total fixed costs of $1,000,000 and variable costs of 75% of sales, would be $4,000,000.

Explanation:

The question is asking for Vault-Tec's break-even level of sales, which is when total sales equals total costs (both fixed costs and variable costs). This is a question about cost-volume-profit analysis in business.

In this case, Vault-Tec's total fixed costs are $1,000,000, excluding the depreciation of $250,000. The variable costs are 75% of sales, meaning for every dollar of sales, $0.75 goes to variable costs. The company will break even when sales are high enough to cover all these costs. This can be calculated using the formula:

Break-Even Sales = Total Fixed Costs / (1- Variable Cost Ratio)

For Vault-Tec, the break-even level of sales can be calculated as follows:

Break-Even Sales = $1,000,000 / (1-0.75) = $4,000,000

This means Vault-Tec needs $4,000,000 of sales to be able to cover its fixed and variable costs and therefore achieve break-even.

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