The margin of safety in the Flaherty Company is $24,000. If the company's sales are $120,000 and its variable expenses are $80,000, its fixed expenses must be:

Question

Quizplus · Accepted Answer

Total Sales = $120,000
Total Variable Expenses = $80,000
Contribution Margin = Total Sales - Total Variable Expenses = $120,000 - $80,000 = $40,000

Margin of Safety = Total Sales - Break-Even Sales
$24,000 = $120,000 - Break-Even Sales
Break-Even Sales = $120,000 - $24,000 = $96,000

Break-Even Sales = Total Fixed Expenses / Contribution Margin
$96,000 = Total Fixed Expenses / $40,000
Total Fixed Expenses = $96,000 x $40,000 = $32,000

The Margin of Safety in the Flaherty Company Is $24,000