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For Waterway Industries, sales is $1580000 (7900 units), fixed expenses are $480000, and the contribution margin...

For Waterway Industries, sales is $1580000 (7900 units), fixed expenses are $480000, and the contribution margin per unit is $80. What is the margin of safety in dollars?

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Answer #1

Actual Sales = $1,580,000

Fixed cost = $480,000

Contribution margin per unit = $80

Units sold = 7,900

Selling price per unit = Actual Sales/Units sold

= 1,580,000/7,900

= $200

Contribution margin ratio =  Contribution margin per unit /Selling price per unit

= 80/200

= 40%

Break even point in dollar sales = Fixed cost/Contribution margin ratio

= 480,000/40%

= $1,200,000

Margin of safety (in dollar) = Actual sales - Break even point in dollar sales

= 1,580,000 - 1,200,000

= $380,000

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