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.

Requirements 1. Compute Dave’s Steel Parts’ monthly breakeven sales in dollars. Use the contri¬ bution margin ratio shortcut approach.

2. Use the contribution margin ratio to project operating income (or loss) if rev¬ enues are $500,000 and if they are $1,000,000.

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