Lake Sales had $2,600,000 in sales last month. The contribution margin ratio was 40% and operating...
Lake Sales had $2,600,000 in sales last month. The contribution margin ratio was 40% and operating profits were $180,000. What is Lake's margin of safety in sales dollars?
Homework Answers
Solution
| Margin of safety | $ 450,000.00 |
Working
| Income statement for Calculation of fixed cost | |
| Sales revenue | $ 2,600,000.00 |
| Variable costs (60%) | $ 1,560,000.00 |
| Contribution margin | $ 1,040,000.00 |
| Fixed cost (balancing figure)[difference between Contribution margin and operating income] | $ 860,000.00 |
| Operating income | $ 180,000.00 |
| A | Contribution margin ratio | 40% |
| B | Fixed cost | $ 860,000 |
| C=B/A | Breakeven point in dollar sales | $ 2,150,000.00 |
| D | Actual sales | $ 2,600,000.00 |
| E=D-C | Margin of safety | $ 450,000.00 |
Margin of safety is sales over and above break-even sales
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