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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 was $250,000, what was Vault-Tec's break-even level of sales?

a) $1,666,667
b) $2,000,000
c) $3,333,333
d) $5,000,000

Answer :

Final answer:

The break-even level of sales for Vault-Tec, after including both annual fixed costs and depreciation and considering that variable costs are 75% of sales, is $5,000,000. This is achieved by applying the break-even point formula based on given costs.

Explanation:

The student has asked about calculating the break-even level of sales for a company called Vault-Tec. To find the break-even point in sales, we have to take into account both fixed and variable costs. Here, Vault-Tec has annual fixed costs of $1,000,000, excluding depreciation, and depreciation is another $250,000. Since variable costs are 75% of sales, we can set up the break-even formula as follows:


Total sales at break-even = Total fixed costs / (1 - Variable cost percentage)


Plugging the given numbers into the formula:


Total sales at break-even = ($1,000,000 + $250,000) / (1 - 0.75) = $1,250,000 / 0.25 = $5,000,000.


Therefore, the break-even level of sales for Vault-Tec is $5,000,000, which corresponds to option d).

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