Question

Awtis Corporation has a margin of safety percentage of 25% based on its actual sales. The break-even point is $360,000 and the variable expenses are 45% of sales. Given this information, the actual profit is:

Answer 1

Margin of safety is = ((actual sales- break even sales)÷actual sales)*100

Let the actual sales is x

According to formula and given figure

25% = ((x - 360000) ÷ x)*100

Or

25% can be written as 25/100 or as 0.25

0.25= (x - 360000)÷ x

0.25x= x - 360000

x - 0.25x = 360000$

0.75x = 360000$

x = 360000 ÷ 0.75

x = 480000$

Actual sales is 480000$

Variable cost is 45% of actual sales

Variable cost = 480000*45% = 216000$

Contribution= sales - variable cost

480000 - 216000 = 264000$

Break even point is = (fixed cost ÷ contribution ratio)

Contribution ratio is= (contribution ÷sales) *100

(264000 ÷480000)*100 = 55%

Let the fixed cost is y

According to formula of break even point

(y ÷ 55%)= 360000

y = 360000*55% = 198000$

Actual income= sales - variable cost - fixed cost

480000- 216000-198000= 66000$