Question

For the current year, Power Cords Corp. expected to sell 42,000 industrial power cords. Fixed costs were expected to total $1,650,000; unit sales price was expected to be $3,750; and unit variable costs were budgeted at $2,250. Power Cord Corp.'s margin of safety (MOS) in sales dollars is: $142,925,000. $187,550,000. $159,295,000. $153,375,000. $171,100,000.

Answer 1

$153,375,000

Step-by-step explanation:

The computation of margin of safety is shown below:-

Contribution margin = Selling price - Variable cost

= $3,750 - $2,250

= $1,500

Contribution percentage = Contribution margin ÷ Selling price

= $1,500 ÷ $2,750

= 40%

Break even sales = Fixed cost ÷ Contribution margin

= $1,650,000 ÷ 40%

= $4,125,000

Actual sales = 42,000 × $3,750

= $157,500,000

Margin of safety = Actual budget Sales - Break even sales

= $157,500,000 - $4,125,000

= $153,375,000