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 mar-gin 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.