Computing breakeven sales and operating income or loss under different conditions
Gary's Steel Parts produces parts for the automobile industry. The company has monthly fixed costs of $660,000 and a contribution margin of 75% of revenues.
Requirements
1. Compute Gary's monthly breakeven sales in dollars. Use the contribution margin ratio approach.
2. Use contribution margin income statements to compute Gary's monthly operating income or operating loss if revenues are $530,000 and if they are $1,040,000.
3. Do the results in Requirement 2 make sense given the breakeven sales you computed in Requirement 1? Explain.