Question

Use the following information to determine the margin of safety in dollars:

Unit sales	51,000 Units
Dollar sales	$	510,000
Fixed costs	$	204,389
Variable costs	$	190,740

rev: 07_12_2018_QC_CS-131102

Multiple Choice

• $94,871.

• $114,871.

• $183,500.

• $326,500.

• $510,000.

Answer 1

Contribution margin ratio

Contribution margin ratio = [Total contribution margin / Sales] x 100

= [(Sales – Variable cost) / Sales] x 100

= [($510,000 - $190,740) / $540,000] x 100

= [$319,260 / $510,000] x 100

= 62.60%

Break-Even Sales in Dollars

Break-Even Sales in Dollars = Total Fixed Cost / Contribution Margin Ratio

= $204,389 / 0.6260

= $326,500

Margin of Safety (in dollars)

Therefore, the Margin of Safety (in dollars) = Actual Sales – Break-even sales in Dollars

= $510,000 - $326,500

= $183,500

“Hence, the margin of safety in dollars will be $183,500”