A company revealed the following figures:
Sales revenue | $2,080,000 |
Contribution margin | $520,000 |
Net operating income | $400,000 |
How much is the company's margin of safety in dollars?
Multiple Choice
$1,600,000
$1,960,000
$180,000
$1,560,000
Net operating income = Contribution margin - Fixed cost
400,000 = 520,000-Fixed cost
Fixed cost = $120,000
Contribution margin ratio = Contribution margin/Sales revenue
= 520,000/2,080,000
= 25%
Break even sales in dollars = Fixed cost /Contribution margin ratio
= 120,000/25%
= $480,000
Margin of safety = Actual sales - Break even sales
= 2,080,000-480,000
= $1,600,000
The company's margin of safety in dollars is $1,600,000
First option is correct.
Kindly give a positive rating if you are satisfied with this solution and please ask if you have any query.
Thanks
Get Answers For Free
Most questions answered within 1 hours.