Awtis Corporation has a margin of safety percentage of 20% based on its actual sales. The break-even point is $500,000 and the variable expenses are 60% of sales. Given this information, the actual profit is:

Question

Quizplus · Accepted Answer

To find the actual profit, we need to first calculate the total sales.

Let X be the total sales:

Margin of Safety = (Total Sales - Break-even Sales) / Total Sales

20% = (X - $500,000) / X

0.2X = X - $500,000

0.8X = $500,000

X = $625,000

Variable expenses are 60% of sales, so they amount to:

$625,000 x 0.6 = $375,000

Fixed expenses are:

$625,000 - $375,000 = $250,000

Therefore, the actual profit is:

$625,000 - $375,000 - $250,000 = $50,000

The correct answer is C.

Awtis Corporation Has a Margin of Safety Percentage of 20