Question

Margin of Safety a. If Canace Company, with a break-even point at $960,000 of sales, has actual sales of $1,200,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number. 1. $fill in the blank 1 2. fill in the blank 2 % b. If the margin of safety for Canace Company was 20%, fixed costs were $1,875,000, and variable costs were 80% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.) $fill in the blank 3

Answer 1

Answer and Explanation:

The computation is given below:

a

Margin of safety in dollars is

= $1,200,000 - $960,000

= $240,000

As a percentage of sales is

= $240,000 ÷ $1,200,000

= 20%

b

Break-even in sales dollars is

= $1,875,000 ÷ (1 - 0.8)

= $9,375,000

Actual sales (dollars) is

= $9,375,000 ÷ (1 - 0.2)

= $11,718,750

In this way it should be determined