Arn Basket, Ltd., sells hand-knit scarves. Each scarf sells for $40. The company pays $150 to rent a vending space for one day. The variable costs are $11 per scarf. What total revenue amount does the company need to earn to break even? (Round any percentages to two decimal places and your final answer to the nearest cent.)

The total revenue needed to break even is $206.90 per day

Explanation:

The break even point of revenue is the total revenue earned by the firm where total revenue equals total cost and there is no profit or no loss. The break even in dollars can be calculated using the following formula,

Break even in dollars = Fixed cost / Contribution margin ratio

Contribution margin ratio = (Selling price per unit - variable cost per unit) / Selling price per unit

Contribution margin ratio = (40 - 11) / 40 = 0.725 or 72.50%

The fixed cost per day is the cost of the vending space of $150.

Break even in dollars = 150 / 0.725   = $206.896 rounded off to $206.90

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