Asked by Mirales Jumuad on Jul 15, 2024
Verified
Cunningham Industries reported actual sales of $2000000 and fixed costs of $540000. The contribution margin ratio is 30%.
Instructions
Compute the margin of safety in dollars and the margin of safety ratio.
Margin of Safety
The difference between actual or projected sales and the break-even point, used as a measure of risk reduction.
Contribution Margin Ratio
The percentage of sales that exceeds variable costs, showing how much revenue is available to cover fixed costs and generate profit.
Fixed Costs
Costs that remain constant regardless of a company's level of activity, including expenses like rent, salaries, and insurance.
- Identify the break-even point quantitatively and in terms of monetary value, leveraging diverse inputs.
- Investigate financial achievements and foresee future performance leveraging Cost-Volume-Profit analysis.
Verified Answer
NM
Nadia MirzaJul 15, 2024
Final Answer :
Break-even point in dollars: $540000 ÷ 30% = $1800000
Margin of safety in dollars: $2000000 - $1800000 = $200000
Margin of safety ratio: $200000 ÷ $2000000 = 10%
Margin of safety in dollars: $2000000 - $1800000 = $200000
Margin of safety ratio: $200000 ÷ $2000000 = 10%
Learning Objectives
- Identify the break-even point quantitatively and in terms of monetary value, leveraging diverse inputs.
- Investigate financial achievements and foresee future performance leveraging Cost-Volume-Profit analysis.