Question

attis corporation has an,argin of safety percentage of 20% based on its actual sales. the breakeven point is $500000 and the variable expenses are 60% of sales. compute the actual profit

Answer 1

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

Break even sales = $500,000

Contribution Margin ratio = 1 - variable cost ratio = (1 - 0.60) = 0.40

Contribution Margin = $500,000 * 0.40 = $200,000

So, Fixed cost = Contribution Margin at the break even point = $200,000

Margin of safety in dollars = Total Actual sales - Break even sales

Margin of safety in dollars = Total Actual sales - $500,000

Margin of safety as percentage = [Total Actual sales - Break even sales] / Total Actual sales

Margin of safety as percentage = 1 - (Break even sales / Total Actual sales)

Break even sales / Total Actual sales = 1 - Margin of safety as percentage

Total Actual sales = Break even sales / (1 - 0.20)

Total Actual sales = $625,000

Profit = (Total Actual sales * CM ratio) - Fixed cost

Profit = ($625,000 * 0.40) - $200,000

Profit = $50,000