Question

Em sales had $2,200,000 in sales last month. the contribution margin ratio was 30% and operating profits were $180,000. what is em's margin of safety is sales dollars? $480,000. $600,000. $2,020,000. cannot determine with the information given.

Answer 1

Calculation of margin of safety in sales dollars:

We are given that Em sales had $2,200,000 in sales last month and the contribution margin ratio was 30% and operating profits were $180,000.

We can calculate fixed cost with the help of following formula:

Fixed Costs  =( Sales * contribution margin ratio) - operating profits

= (2200000*30%)-180000

= $ 480,000

Now we can calculate Breakevens Dollar Sales as follows:

Breakevens Dollar Sales = Fixed Cost / Contribution Margin %

= 480,000/30%

= $1,600,000

Finally, we can calculate the margin of safety in sales dollars as follows:

The margin of safety in sales dollars =  Actual Sales – Breakevens sales

= 2200000-1600000

=$600,000

Hence, Margin of safety in sales dollars is $600,000