Final answer:
To calculate Switty Corporation's margin of safety, subtract the break-even sales in dollars from actual sales, which results in a margin of safety of $200,000.
Step-by-step explanation:
To determine the margin of safety for Switty Corporation, we first need to find the break-even point in units and then convert this to dollars. The break-even point in units is calculated by dividing the fixed expenses by the unit contribution margin.
Break-even point (units) = Fixed Expenses / Unit Contribution Margin
Break-even point (units) = $350,000 / $70 = 5000 units
Now, we multiply the break-even units by the selling price per unit to get the break-even point in dollars. The selling price per unit can be found by dividing the total sales revenue by the total units sold.
Selling price per unit = Total Sales Revenue / Total Units Sold = $1,200,000 / 6000 units = $200
Break-even point (dollars) = Break-even units * Selling price per unit = 5000 units * $200 = $1,000,000
The margin of safety in dollars is the difference between actual sales and break-even sales:
Margin of Safety (dollars) = Actual Sales - Break-even Sales = $1,200,000 - $1,000,000
Margin of Safety (dollars) = $200,000
- Therefore, the margin of safety for Switty Corporation is $200,000.