Question

Lauder Company had fixed costs of $282,500, variable costs of $645,000, and actual sales amounted to $1,100,000. If the company has a break-even point at $750,000 in sales revenue.a. determine the margin of safety expressed in dollars
b. determine the margin of safety expressed as a percentage of sales. Enter percentage amount as a whole number.
____%
c. Determine contribution margin ratio
_____%
d. Determine the operating income
$______

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Lauder Company had fixed costs of $282,500, variable costs of $645,000, and actual sales amounted to $1,100,000.

Break-even point at $750,000 in sales revenue.

A) Margin of safety= current sales level - break-even point

Margin of safety= 1,100,000 - 750,000= $350,000

B) Margin of safety ratio= (current sales level - break-even point)/current sales level

Margin of safety ratio= 350,000/1,100,000= 0.032*100= 3.18%

C) Contribution margin ratio= contribution margin/ selling price

We can determine the contribution margin ratio using the break-even point formula:

Break-even point (dollars)= fixed costs/ contribution margin ratio

750,000= 282,500/contribution margin ratio

contribution margin ratio= 282,500/750,000

contribution margin ratio= 0.38

D) Operating income:

Sales= 1,100,000

Variable costs= -645,000

Fixed costs= -282,500

Operating income= 172,500