a. If Canace Company, with a break-even point at $528,000 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 35%, fixed costs were $1,963,325, and variable costs were 65%
of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars
first.)
$
A. Margin of Safety in dollars = Sales - Breakeven sales = 660,000 - 528,000 = 132,000 Margin of Safety in percentage = 132,000/660,000 = 20% |
B. Break-even sales = Fixed cost/Contribution margin ratio = 1,963,325/(100-65)% = 5,609,500 Margin of Safety = 35% (Sales - Breakeven sales) /Sales = 35% (Sales - 5,609,500)/Sales = 0.35 Sales - 5,609,500 = 0.35Sales Sales = 8,630,000 |
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