Terry's Donut Shop had the following activity for December: $$\begin{array} { l l }
\text { Total donuts sold } & 17,000 \
\text { Total revenues } & \$ 595,000 \
\text { Total fixed costs } & 99,000 \
\text { Total variable costs } & 357,000
\end{array}$$ What was Terry's margin of safety, in dollars?
A) $430,000
B) $247,500
C) $347,500
D) $357,000

Question

Terry's Donut Shop had the following activity for December: $$\begin{array} { l l } 
\text { Total donuts sold } & 17,000 \
\text { Total revenues } & \$ 595,000 \
\text { Total fixed costs } & 99,000 \
\text { Total variable costs } & 357,000
\end{array}$$ What was Terry's margin of safety, in dollars?
A) $430,000
B) $247,500
C) $347,500
D) $357,000

Quizplus · Accepted Answer

The margin of safety is calculated as Total Revenues minus Break-even Sales. Break-even Sales = Fixed Costs / (1 - Variable Cost Ratio). Variable Cost Ratio = Total Variable Costs / Total Revenues = 357,000 / 595,000 = 0.6. Break-even Sales = 99,000 / (1 - 0.6) = 247,500. Margin of Safety = 595,000 - 247,500 = 347,500.

Terry's Donut Shop Had the Following Activity for December What Was Terry's Margin of Safety, in Dollars? A) $430,000

Terry's Donut Shop Had the Following Activity for December What Was Terry's Margin of Safety, in Dollars?
A) $430,000