Question

Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed costs?

A) $100,000.
B) $300,000.
C) $160,000.
D) $200,000.

Answer 1

Answer: Option (D) is correct.

Step-by-step explanation:

Given that,

Company planning to sell = 200,000 pliers for $4 per unit

Contribution margin ratio = 25%

Contribution Margin per unit = $ 4 × 25%

= $1 per unit

Break Even Sales =
`(Fixed\ cost)/(Contribution\ Margin)`

Fixed cost = Break Even Sales × Contribution Margin

= 200,000 × $1

= $200,000