Question

Idaho Corp. has fixed costs of $20,000 and a contribution margin ratio of 50%. Currently, sales are $82,000. What is Idaho's margin of safety? A) $28,000 B) $35,000 C) $42,000 D) $70,000 C B D OA

Answer 1

Idaho Corp's margin of safety can be calculated as follows:

Margin of safety = (Current sales - Break-even sales)

Where break-even sales = Fixed costs / Contribution margin ratio

Given that Idaho Corp's fixed costs are $20,000 and the contribution margin ratio is 50%, the break-even sales can be calculated as:

Break-even sales = $20,000 / 0.5 = $40,000

And since the current sales are $82,000, the margin of safety is:

Margin of safety = ($82,000 - $40,000) = $42,000

Therefore, the answer is C) $42,000.

Step-by-step explanation: