Evan's Electronics Boutique sells a digital camera. The following information was reported for the digital camera last month: Evan's margin of safety in dollars and percentage are closest to:

Question

Evan's Electronics Boutique sells a digital camera. The following information was reported for the digital camera last month:  Evan's margin of safety in dollars and percentage are closest to:

Quizplus · Accepted Answer

Contribution margin = Sales - Variable expenses
= $17,600 - $9,680 = $7,920
CM ratio = Contribution margin ÷ Sales
= $7,920 ÷ $17,600 = 0.45
Dollar sales to break even = Fixed expenses ÷ CM ratio
= $3,600 ÷ 0.45 = $8,000
Margin of safety in dollars = Total budgeted (or actual) sales - Break-even sales
= $17,600 - $8,000 = $9,600
Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales
= $9,600 ÷ $17,600 = 55%

Evan's Electronics Boutique Sells a Digital Camera