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Kiki Assembly is a manufacturer of bicycles. The company’s contribution style income statement for 20x5 is...

Kiki Assembly is a manufacturer of bicycles. The company’s contribution style income statement for 20x5 is given below: Sales (1210 units) $549015 Variable Costs 264333 Contribution Margin $284682 Fixed Costs 156240 Operating Income $128442 Income Tax Expense (20%) 25688.4 Net Income $102753.6 What is Kiki’s margin of safety expressed as a percentage?

Select one: a. 110% b. 51.85% c. 54.88% d. 45.12%

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Answer #1

Sales = $549,015

Contribution margin = $284,682

Contribution margin ratio = Contribution margin / Sales

Contribution margin ratio = $284,682 / $549,015

Contribution margin ratio = 0.51853228

Break even sales = Fixed cost / Contribution margin ratio = $156,240 / 0.51853228

Break even sales = $301,312

Margin of safety = [(Actual sales - Break even sales) / Break even sales] * 100

Margin of safety = [(549,015 - $301,312) / 549,015] * 100 = 45.12%

Margin of safety = 45.12%

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