Question

Awtis Corporation has a margin of safety percentage of 25% based on its actual sales. The break-even point is $346,800 and the variable expenses are 45% of sales. Given this information, the actual profit is:

Answer 1

Explanation:

Margin of safety = (Sales-BreakevenSales)/Sales

25% = (Sales - 346,800)/Sales

0.25 Sales = Sales - 346,800

0.75 Sales = 346,800

Sales = 462,400

Fixed cost = BreakevenSales*Contribution ratio = 346,800*(1-45%) = 190,740

Actual profit = Sales - Variable expenses - Fixed cost = 462,400 - 462,400*45% - 190,740 = 462,400 - 208,080 - 190,740 = 63,580

Actual profit is $63,580