Please give me a right answer please if you cant answer it let someone else solv
ID: 2509898 • Letter: P
Question
Please give me a right answer please if you cant answer it let someone else solve it
Margin of Safety
a. If Canace Company, with a break-even point at $608,000 of sales, has actual sales of $800,000, 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 30%, fixed costs were $1,333,500, and variable costs were 70% of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars first.)
$
Explanation / Answer
a. Margin of Safety in dollars= (Actual Sales - Break Even Sales )
= ( $ 800,000 - $ 608,000)
= $192,000
Hence the correct answer is $ 192,000
Margin of Safety as percentage of sales =(Actual Sales - Break Even Sales )/ Actual Sales *100
= ( $ 800,000 - $ 608,000) / $ 800,000 *100
= $ 192,000 / $ 800,000 *100
= 24%
Hence the correct answer is 24%
b. Margin of Safety as percentage of sales =(Actual Sales - Break Even Sales )/ Actual Sales *100
30% = ( Actuals Sales - $ 4,445,000) / Actual Sales *100
or 0.3 * Actual Sales = Actuals Sales - $ 4,445,000
or $ 4,445,000 = Actuals Sales - 0.3 Actuals Sales
or $ 4,445,000 = 0.7 Actual Sales
or Actual Sales = $ 4,445,000 / 0.7
= $ 6,350,000
Hence the correct answer is $ 6,350,000
Note:
Break Even Sales = Fixed Cost / Contribution Margin ratio
= $ 1,333,500 /30%
= $ 4,445,000
Contribution Margin ratio = 1- variable Cost Ratio
= 1- 70%
= 30%