Question

Jakarta Company is a service firm with current service revenue of $500,000 and a 40% contribution margin. Its fixed costs are $80,000. Maldives Company has current sales of $6,620,000 and a 50% contribution margin. Its fixed costs are $2,151,500. A. What is the margin of safety for Jakarta and Maldives

Answer 1

Answer and Explanation:

The computation of the margin of safety is shown below:

As we know that

margin of safety = Actual sales - break even sales

For Jakarta, it is

= $500,000 - ($80,000 ÷ 0.40)

= $500,000 - $200,000

= $300,000

And, for maldives, it is

= $6,620,000 - ($2,151,500 ÷ 50%)

= $2,317,000