Homework Answers
C. $100,000
Contribution margin = Sales revenue - Variable costs = $500,000 - $150,000 - $100,000 = $250,000
Contribution margin ratio = Contribution margin / Sales revenue = $250,000 / $500,000 = 0.50 or 50%
Break-even sales = Fixed costs / Contribution margin ratio = ($150,000 + $50,000) / 0.50 = $400,000
Margin of safety = Actual sales - Break-even sales
Margin of safety = $500,000 - $400,000
Margin of safety = $100,000
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