Question

a. If Canace Company, with a break-even point at $248,400 of sales, has actual sales of $360,000, 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. 111,600$

2. 31%

b. If the margin of safety for Canace Company was 45%, fixed costs were $2,059,200, and variable costs were 55% of sales, what was the amount of actual sales (dollars)?
(Hint: Determine the break-even in sales dollars first.)

Answer 1

b.

Margin of safety = 45%

Fixed cost = $2,059,200

Variable cost = 55% of sales

Since variable cost is 55% of sales . hence Contribution margin ratio must be 45%

Break even point ( in dollars) = Fixed cost/ Contribution margin ratio

= 2,059,200/45%

= $4,576,000

Margin of safety = 45%

(Actual sales - Break even sales) /Actual sales = 45%

Actual sales - 4,576,000/Actual sales = 45%

Actual sales - 4,576,000 = 0.45 actual sales

Actual sales - 0.45 actual sales = 4,576,000

0.55 actual sales = 4,576,000

Actual sales = $8,320,000

Please give a positive rating if you are satisfied with this solution and if you have any query kindly ask.

Thanks!!!