a. If Canace Company, with a break-even point at $252,000 of sales, has actual sales of $400,000, 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 45%, fixed costs were $1,777,050, and variable costswere 55% of
sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars
first.)
$
a.
1. Margin Of Safety ( in Dollars) = Actual Sales- Break Even Sales
= $ 400,000 - $ 252,000
= $ 148,000
2. Margin of Safety ( as a percentage of sales) = Actual Sales- Break Even Sales / Actual Sales *100
= ($ 400,000 - $ 252,000) / 400,000 *100
= 37%
b. Margin of Safety ( as a percentage of sales) = Actual Sales- Break Even Sales / Actual Sales
45% = (Actual Sales - $ 3,949,000 / Actual Sales)
Let the Actual Sales be $ x
0.45 = $ x - $ 3,949,000 / $ x
or 0.45 x = $ x - 3,949,000
or $ 3,949,000 = $ x - $ 0.45x
or 3,949,000 = $ 0.55 x
or x = 3,949,000 /0.55
or x = $ 7,180,000
Hence the correct answer is $ 7,180,000
Note :
Break Even Sales = Fixed Cost / Contribution Margin Ratio
= $ 1,777,050 / (100% - 55%)
= $ 3,949,000
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