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Answer :
Final Answer:
Certainly, Vault-Tec's break-even level of sales is $1,250,000 (Option B). This means that in order to cover all their fixed costs, including depreciation, and start generating profits, Vault-Tec needs to achieve annual sales of $1,250,000.
Explanation:
Explanation:
To calculate Vault-Tec's break-even level of sales, we need to consider the fixed costs, variable costs, and depreciation.
Step 1: Calculate the total fixed costs, including depreciation:
Fixed costs = Annual fixed costs - Depreciation
Fixed costs = $1,000,000 - $250,000
Fixed costs = $750,000
Step 2: Calculate the contribution margin, which is the portion of sales that covers fixed costs:
Contribution Margin = 100% - Variable costs as a percentage of sales
Contribution Margin = 100% - 75%
Contribution Margin = 25%
Step 3: Determine the break-even level of sales:
Break-even Sales = Fixed Costs / Contribution Margin
Break-even Sales = $750,000 / 0.25
Break-even Sales = $3,000,000
So, Vault-Tec's break-even level of sales is $3,000,000. However, this calculation doesn't account for depreciation. To find the break-even sales level including depreciation, we add the depreciation amount back:
Break-even Sales (including depreciation) = Break-even Sales + Depreciation
Break-even Sales (including depreciation) = $3,000,000 + $250,000
Break-even Sales (including depreciation) = $1,250,000
Therefore, Vault-Tec's break-even level of sales, including depreciation, is $1,250,000, which corresponds to option B.
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Final answer:
Vault-Tec's break-even level of sales is $5,000,000.
Explanation:
Vault-Tec's break-even level of sales can be calculated by setting the total costs equal to total revenues. Total costs consist of fixed costs, variable costs, and depreciation. Let's call the break-even level of sales X.
Fixed costs = $1,000,000
Variable costs = 75% of X = 0.75X
Depreciation = $250,000
Total costs = Fixed costs + Variable costs + Depreciation = $1,000,000 + 0.75X + $250,000
Setting total costs equal to total revenues, we have:
Total costs = Total revenues
$1,000,000 + 0.75X + $250,000 = X
Simplifying the equation, we find:
$1,250,000 = 0.25X
To find X, we divide both sides by 0.25:
X = $5,000,000
Therefore, Vault-Tec's break-even level of sales is $5,000,000.
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