Alexandre’s Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $620,000 and a contribution margin of 90% of revenues.
Requirements
1. Compute Alexandre’s Steel Parts’ monthly break-even sales in dollars. Use the contribution margin ratio shortcut approach.
2. Use the contribution margin ratio to project operating income (or loss) if revenues are $500,000 and if they are $1,030,000.
3. Do the results in Requirement 2 make sense given the break-even sales you computed in Requirement 1? Explain.