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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.

Respuesta :

Answer: Option (D) is correct.

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 = [tex]\frac{Fixed\ cost}{Contribution\ Margin}[/tex]

           Fixed cost =  Break Even Sales × Contribution Margin

                             = 200,000 × $1

                             = $200,000

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