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.
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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