Margin of Safety a. If Canace Company, with a break-even point at $446,600 of sa
ID: 2518160 • Letter: M
Question
Margin of Safety
a. If Canace Company, with a break-even point at $446,600 of sales, has actual sales of $770,000, 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 25%, fixed costs were $1,293,750, and variable costs were 75% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.) $____
Explanation / Answer
Margin of safety=Total sales-Breakeven sales
1.MOS=(770,000-446600)=$323400
MOS%=(323400/770,000)=42%
2.At breakeven;Contribution margin=Fixed costs=$1,293,750
Contribution margin=Sales-Variable costs
=(100-75)=25% of sales
Hence breakeven sales=(1293750/0.25)=$5,175,000
Breakeven sales=(1-0.25)=0.75Actual sales
Actual sales=(5,175,000/0.75)=$6,900,000