Question

The following information is taken from Wampler Co's current year contribution income statement: Sales $200,000 Contribution margin $120,000 Fixed costs $90,000 Income taxes $12,000 What was Wampler's margin of safety?

Answer 1

Contribution margin % = (Contribution margin / Sales) * 100 = ($120,000/$200,000) * 100 = 60%

Breakeven Sales = (Income tax + Fixed Cost) / Contribution margin% = ($90,000+$12,000) / 60% = $170,000

Margin of safety = Actual Sales - Breakeven Sales = $200,000 - $170,000 =$30,000

Therefore, Wampler's margin of safety = $30,000.

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