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y has be e n income? Vr y d What is the most as a percentage of the indus? O A 203 OB 11.11 OC. 33
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Answer #1

Monthly margin of safety as a percentage of target sales

Total Contribution margin = Net operating income + fixed expenses

= $7,000 + $880

= $7,880

Contribution margin ratio = 100% - Variable cost ratio

= 100% - 80%

= 20%

Target sales in dollars = Total Contribution margin / Contribution margin ratio

= $7,880 / 0.20

= $39,400

Break even sales in dollars = Total fixed expenses / Contribution margin ratio

= $880 / 0.20

= $4,400

Margin of safety in dollars = Target total sales – Break even sales

= $39,400 - $4,400

= $35,000

Therefore, the Monthly margin of safety as a percentage of target sales = [Margin of safety in dollars / Target total sales] x 100

= [$35,000 / $39,400] x 100

= 88.83%

“Hence, the Monthly margin of safety as a percentage of target sales will be 88.83%”

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