a. If Canace Company, with a break-even point at $409,200 of sales, has actual sales of $660,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.
1. $
2. %
b. If the margin of safety for Canace Company
was 30%, fixed costs were $1,631,700, and variable costs were 70%
of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars
first.)
$
a. 1. margin of safety = Actual Sales - Break Even sales
= $ 660,000 - $ 409,200
=$ 250,800
2. margin of safety as a percentage = (Actual Sales - Break Even sales ) / Actual Sales *100
= $ 250,800 / $ 660,000 *100
= 38%
-------------
b. Let the actual sales be $x
Variable cost = 0.7x
Contribution Margin = Sales - Variable Cost
= 0.3x
Contribution Margin % = 0.3x/x
= 0.30
Break Even sales=Fixed Cost / Contribution Margin %
= $ 1,631,700 / 0.30
= $ 5,439,000
margin of safety = (Actual Sales - Break Even sales) / Actual Sales
30% = (x - $ 5,439,000) /x
0.30x = x - $ 5,439,000
$ 5,439,000= 0.7x
x= $ 5,439,000/ 0.7
= $ 7,770,000
Hence the correct answer is $ 7,770,000
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