Compute breakeven and project income (Learning Objectives 1, 2)

Dave's Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of \(\$ 640,000\) and a contribution margin of \(80 \%\) of revenues.

\section*{Requirements}

1. Compute Dave's Steel Parts' monthly breakeven 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 \(\$ 1,000,000\).

3. Do the results in Requirement 2 make sense given the breakeven sales you computed in Requirement 1? Explain.