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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Margin of safety
a. If Go-Go Buggies Company, with a break-even point at $6.000.000 of sales, has actual sales of 48.000,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales?
b. If die margin of safety for Beartooth Company was 15%. fixed costs were $9,180,000. and variable costs were 60% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.)

To determine

Concept Introduction:

Margin of Safety: The projected or budgeted sale more than the break even sale is denoted by the margin of sales in amount and to calculate margin of sale in percentage we divide the amount by the sales.

To Calculate:

Find Margin of safety in dollars and in percentage. Find the amount of actual sales and Breakevens sales.

Explanation

a. 1. Margin of Safety (in dollars) = Actual/ Budgeted Sales- break even sales

  = 80000000- 60000000

  = 20000000

2. Margin of Safety (in %) = Margin of safety (in dollars)/ Actual/ Budgeted Sales

  = 20000000/ 80000000

  = 25%

b. Actual sales= x

  Variable cost = .6x

  Contribution = .4x

  Fixed cost= 9180000

  Profit= ...

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