The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging a concert are $350,000. Variable costs per patron are $5.00. The selling price for a tickets $25.00. The Blue Saints Band has sold 23,000 tickets so far. At the current level of sales, what is the margin of safety ratio?

Question

Quizplus · Accepted Answer

Break-even volume (dollars) = Fixed cost / Contribution margin ratio.
Break-even volume = $350,000 / ($25 - $5 / $20)
Break-even volume = $350,000 / 80% = $437,500
Sales dollars at current level = $25 x 23,000 = $575,000
Margin of safety = Sales revenue - break-even sales revenue
Margin of safety = $575,000 - $437,500 = $137,500
Margin of safety ratio = Margin of safety / sales
Margin of safety ratio = $137,500 / $575,000 = 23.9%

The Blue Saints Band Is Holding a Concert in Toronto