A company makes a single product that it sells for $16 per unit. Fixed costs are $76,800 10) per month and the product has a contribution margin ratio of 40%. If the company's actual sales are $224,000, its margin of safety is: A) $192,000 B) $32,000 C) $128,000 D) $96,000

Question

Business

Jorge Palmer

11 March, 18:40

A company makes a single product that it sells for $16 per unit. Fixed costs are $76,800 10) per month and the product has a contribution margin ratio of 40%. If the company's actual sales are $224,000, its margin of safety is: A) $192,000 B) $32,000 C) $128,000 D) $96,000

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Answers (1)

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Wilber · Answer 1

B) $32,000

Explanation:

The computation of the margin of safety is shown below:

= Expected sales - break even sales

where,

Expected sales = $224,000

Break even sales is

= Fixed cost : Contribution margin ratio

= $76,800 : 40%

= $192,000

so, the margin of safety is

= $224,000 - $192,000

= $32,000

Hence, the correct option is b.