Delisa Corporation has two divisions: Division L and Division Q. Data from the most recent month appear below: Total Company Division L Division Q Sales
170,000
27,100
97,990 The break-even in sales dollars for Division Q is closest to:
The Correct Answer and Explanation is:
To calculate the break-even sales in dollars for Division Q, it is necessary to know the contribution margin ratio or the relevant fixed and variable costs. However, the only information provided includes sales values for the total company, Division L, and Division Q:
- Total Sales: $170,000
- Division L Sales: $27,100
- Division Q Sales: $97,990
This implies that Division Q makes up a significant portion of the company’s total sales. But to determine the break-even point in dollars, additional data is typically required such as:
- Fixed expenses for Division Q
- Variable expenses or contribution margin for Division Q
If it is assumed that the company operates at break-even overall and only those three numbers are used, then the break-even can be allocated proportionally based on the sales ratio of Division Q.
Step-by-step estimation using proportional method:
- Sales Proportion of Division Q
= Division Q Sales ÷ Total Sales
= $97,990 ÷ $170,000 ≈ 0.5764 (or 57.64%) - If the company-wide break-even sales is assumed to be the total sales (i.e., $170,000), and that both divisions break even proportionally to their sales contributions, then: Estimated Break-even Sales for Division Q
= 0.5764 × $170,000
≈ $97,988
Therefore, the break-even in sales dollars for Division Q is closest to $97,990.
Explanation:
The break-even point represents the level of sales at which a division or business covers all of its fixed and variable costs, resulting in zero net profit or loss. If detailed cost data are unavailable, and a company is said to be breaking even as a whole, an approximate method is to distribute the break-even sales total across divisions in proportion to their contribution to total sales. Division Q, contributing about 57.64% of sales, would then require approximately $97,990 in sales to break even under this assumption. This approximation assumes similar cost structures across divisions, which may not reflect reality but is suitable for high-level estimation.
