Margin of Safety
a. If Canace Company, with a break-even point at $539,500 of sales, has actual sales of $650,000, 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 $1,688,050, 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) 1) | |
Actual Sales | 650,000 |
Less: BEP sales | (539,500) |
Margin of safety in dollars (650,000 - 539,500) | 110,500 |
a) 2) | |
Margin of safety in dollars | 110,500 |
Actual Sales | 650,000 |
Margin of safety as a % of sales (110,500/650,000) | 17% |
b) | |
Variable cost margin | 65% |
Contribution margin (1 - 65%) | 35% |
Fixed Costs | 1,688,050 |
Break-even-Point in dollars = Fixed Costs/ Contribution margin | 4,823,000 |
Margin of safety | 35% |
Margin of Safety in dollars (4,823,000*35/65) | 2,597,000 |
Actual Sales = BEP + Margin of safety | 7,420,000 |
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