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Assume Sparkle Co. expects to sell 150 units next month. The unit sales price is $90,...

Assume Sparkle Co. expects to sell 150 units next month. The unit sales price is $90, unit variable cost is $30, and the fixed costs per month are $5,000. The margin of safety in terms of sales revenue is:

Round to two decimal places.

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Answer #1

Margin of safety in dollars = Total Sales - Break Even Sales

Break Even Sales = Fixed Expenses / Contribution margin ratio

Contribution margin ratio = (Sales - Variable Cost) / Sales

Sales = $90

Variable Cost = $30

Contribution margin ratio = ($90 - $30) / $90

= $60 / $90

= 0.6667 or 66.67%

Break Even Sales = Fixed Expenses / Contribution margin ratio

= $5,000 / 0.6667

= $7,500

Margin of safety in dollars = Total Sales - Break Even Sales

= 150 units * $90 - $7500

= $13,500 - $7,500

= $6,000

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