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Jim Bowden, owner of Bowden Brake Service, is planning to expand his six-year-old brake service...

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Accounting

Jim Bowden, owner of Bowden Brake Service, is planning to expand his six-year-old brake service to include tune-ups and tire services. Based on budget estimates for the upcoming year, Jim expects net sales to be $825,000 with a cost of goods sold of $530,000 and total operating expenses of $210,000. From the budget he created, Jim computes fixed expenses to be $168,000, while variable expenses (including cost of goods sold) are $572,000. Jim is concerned that the new cost structure may damage his ability to produce a profit and he wants to perform a break-even analysis for the upcoming year to gain insight. Help Jim compute the break-even point for his brake service.

I have come up with this answer, although I don't think it's correct. What am I doing wrong?

Take variable expenses @ 572,000 divide by net sales @ 825,000 = .6933 percent. The company uses approximately 70 cents per dollar for variable expenses, leaving 30 cents (.3067) of each dollar as a contribution to cover fixed cost and make a profit. Break-even sales is 168,000 divided by .3067 (variable expenses) = $547,767.

The shop will break-even at $547,767.

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