Question

For the current year, Power Cords Corp. expected to sell 42,100 industrial power cords. Fixed costs were expected to total $1,650,500; unit sales price was expected to be $3,800; and unit variable costs were budgeted at $2,300.

Power Cord Corp.'s margin of safety (MOS) in sales dollars is: (Do not round intermediate calculations.)
A. $155,798,733.
B. $189,973,732.
C. $161,718,730.
D. $173,523,730.
E. $145,348,733.

Answer 1

A. $155,798,733.

Step-by-step explanation:

The first task to determine the break-even point in sales dollars as shown below:

break-even point in sales dollars=fixed costs/contribution margin ratio

fixed costs=$1,650,500

contribution margin ratio=unit contribution margin/sales price

unit contribution margin=unit sales price- unit variable costs

unit contribution margin=$3,800-$2,300

unit contribution margin=$1,500

contribution margin ratio=$1500/$3,800

contribution margin ratio=39.47%

break-even point in sales dollars=$1,650,500/39.47%

break-even point in sales dollars=$4,181,657

margin of safety (MOS) in sales dollars=current sales- break-even point in sales dollars

current sales=42,100*$3,800=$159,980,000

margin of safety (MOS) in sales dollars=$159,980,000-$4,181,657=$155,798,343(closest to $155,798,733)