Question

For Vaughn Manufacturing, sales is $1360000 (6800 units), fixed expenses are $480000, and the contribution margin per unit is $100. What is the margin of safety in dollars?

Answer 1

$400,000

Step-by-step explanation:

First, we need to calculate the Break even point in dollars

Break even point = Fixed cost / Contribution margin ratio

But ,

Contribution margin ratio = 480,000 / [(200-100)/200]

= 960,000

Therefore,

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

= 6,800 units × $200 - $960,000

= $1,360,000 - $960,000

= $400,000