Question

Margin of Safety a. If Fama Company, with a break-even point at $525,600 of sales, has...

Margin of Safety

a. If Fama Company, with a break-even point at $525,600 of sales, has actual sales of $720,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.

1. $

2.   %

b. If the margin of safety for Watkins Company was 35%, fixed costs were $1,410,500, and variable costs were 65% of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars first.)
$

Homework Answers

Answer #1
  • All working forms part of the answer
  • Requirement (a)

A

Actual Sales

$720,000

B

Break Even Point sales

$525,600

C=A-B

Margin of Safety sales in Dollars

$194,400

D=C/A

Margin of Safety sales in % of sale [(194400/720000) x 100]

27%

  • Requirement (b)

A

Variable cost % of sale

65%

B= 100% - A

Contribution margin ratio will be

[100% - 65%] 35%

C

Fixed Cost

$1,410,500

D=C/B

Break Even point Sales in dollars [1410500/35%]

$4,030,000

E

Margin of Safety % of actual sale

35%

F=100% - E

Break Even point sales % of actual sale

65%

G=D/F

Actual Sales will be [4030000/65%]

$6,200,000

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