Question

Awtis Corporation has a margin of safety percentage of 25% based on its actual sales. The break-even point is $320,400 and the variable expenses are 45% of sales. Given this information, the actual profit is:

Answer 1

Cm ratio=1-variable expenses

So cm ratio =1-0.45=0.55

Break even sales=fixed expenses divided by cm ratio

So 320400=fixed expenses divided by 0.55=176220

now wil find out total actual sales

Total actual sales=break even sales divided by (1-margin of safety)

So total actual sales=320400 divided by (1-0.25)=427200

now will find out profit

Profit=(cm ratio*sales)-fixed expenses

Profit=(0.55*427200)-176220

Profit=234960-176220=58740

note*

There are different formulas that will help in future

Margin of safety=total actual sales-break even sales

Margin of safety%= margin of safety divided by total actual sales

Margin of safety%=(total actual sales-break even sales)divided by actual sales

Margin of safety%=1-break even sales divided by total actual sales

Break even sales divided by total actual sales=1-margin of safety percentage.