Question

Harold McWilliams owns and manages a general merchandise store in a rural area of Virginia. Harold sells appliances, clothing, auto parts, and farming equipment, among a wide variety of other types of merchandise. Because of normal seasonal and cyclical fluctuations in the local economy, he knows that his business will also have these fluctuations, and he is planning to use CVP analysis to help him understand how he can expect his profits to change with these fluctuations. Harold has the following information for his most recent year. Cost of goods sold represents the cost paid for the merchandise he sells, while operating costs represent rent, insurance, and salaries, which are entirely fixed Sales $800,000 Cost of merchandise sold Contribution margin Operating costs 488,000 312,000 146,250 $165,750 Operating profit Required: 1-a. What is Harold's margin of safety (MOS) in dollars? (Do not round intermediate calculations.) 1-b. What is the margin of safety (MOS) ratio? (Input your answer as a percentage rounded to 2 decimal places (i.e., 0.1567 = 15.67%).) 3. What is Harold's margin of safety (in dollars) and operating profit if sales should fall to $675,000? (Do not round intermediate calculations.) 1-a Margin of safety (MOS) 1-b. MOS ratio % Margin of safety Operating profit 3.

Answer 1

1a 1-0 Margin of safety = plantelor 2016 Profit = $165,750 - PV Ratio = contribution X100 sales - $312,000 X100 $ 800poo = 397. $165,750 x 100 39 Seite $ 425000 C ame N - 39 1-b Margin sales - Break Even sales Break of safety Ratio = Total Total Sales Even sales = Total Sales - MOS = $800,000 - $425000 $375000 = $800,000 - $375,000 vi X100 = 53.13% $800,000 MOS Ratio

3. Margin of satety and operating profit if sales should fall to $675,000 Margin of safety = $325,000 Operating profit - $11 7000 horking notes (il contribution = sales x PV latio = $675000X397. = $263250 (1) COQS = Sales - contribution = $675,000 - $263250 = $ 411,750 Güis operating costs - Operating costs is e fixed, so it remains some (iv) Margin of safety = Profit / Puratio = 117000 x 100 = $325,000 39 (v) Operating profit = contribution - Operating cost TO WWW.WORSTWO

= $ 63250 -8146,250 二 4111000