Grover’s Steel Parts produces parts for the automobile industry. The company has monthly fixed expenses of $ 630,000 and a contribution margin of 70% of revenues.
1. Compute Grover’s Steel Parts’ monthly breakeven sales in dollars.
2. Use the contribution margin ratio to project operating income (or loss) if revenues are $ 520,000 and if they are $ 1,010,000.
3. Do the results in Requirement 2 make sense given the breakeven sales you computed in Requirement 1? Explain.