Kaitlyn's Cakes had the following activity for December:
Total cakes sold 23,000
Total revenues $500,000
Total fixed costs 99,000
Total variable costs 350,000
What was Kaitlyn's margin of safety, in dollars?
A) $330,000
B) $247,500
C) $347,500
D) $170,000

Question

Kaitlyn's Cakes had the following activity for December: 
Total cakes sold 23,000
Total revenues $500,000
Total fixed costs 99,000
Total variable costs 350,000
What was Kaitlyn's margin of safety, in dollars?
A) $330,000
B) $247,500
C) $347,500
D) $170,000

Quizplus · Accepted Answer

The margin of safety is calculated as actual sales minus break-even sales. Break-even sales = Total fixed costs / (1 - (Total variable costs / Total revenues)) = $99,000 / (1 - ($350,000 / $500,000)) = $330,000. Margin of safety = $500,000 - $330,000 = $170,000.

Kaitlyn's Cakes Had the Following Activity for December