Question

lannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the current margin of safety in dollars for Flannigan Company

Answer 1

$2,200,000

Step-by-step explanation:

Margin of safety means by how much sales can fall before a firm starts making a loss.

Margin of safety = Current Sales - Break even sales

where,

Break even sales = Fixed Cost ÷ Contribution margin ratio

= $800,000 ÷ 0.40

= $2,000,000

therefore,

Margin of safety = $4,200,000 - $2,000,000

= $2,200,000