Question

​Matthew's Fish Fry has a monthly target operating income of​ $8,300. Variable expenses are​ 80% of sales and monthly fixed expenses are​ $800. What is the monthly margin of safety as a percentage of target sales in​ dollars?

Answer 1

Margin of Safety as percent of sales 91.21%

Step-by-step explanation:

`Sales \: Revenue - Variable \: Cost = Contribution \: Margin`

If variable = 80% of sales then

sales - 80% sales = .20 sales = Contribution margin ratio

Next will be calcualte the BEP

`(Fixed\:Cost)/(Contribution \:Margin \:Ratio) = Break\: Even\: Point_(dollars)`

800/0.2 = 4,000

Sales to achieve target income of 8,300

`(Fixed\:Cost + taget \: profit)/(Contribution \:Margin \:Ratio) = Sales\: to\: Profit{dollars}`

(800+8,300)/.2 = 45,500

Margin of safety:

`(current \:sales - BEP_(USD))/(current \:sales) * 100 = margin \: of \: safety`

`(45,500 - 4,000)/(45,500) * 100 = 91.21%`