Stockmaster Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. The margin of safety in dollars is closest to:
A) $6,400
B) $16,000
C) $121,600
D) $128,000

Question

Stockmaster Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range.  The margin of safety in dollars is closest to:
A) $6,400 
B) $16,000 
C) $121,600 
D) $128,000

Quizplus · Accepted Answer

Margin of safety in dollars = Total Sales - Break-even Sales
Total Sales = $224,000
Break-even Sales = ($112,000 + $72,000 + $8,000) / 0.4 = $480,000
Margin of safety = $224,000 - $480,000 = -$256,000 (negative means loss)
Therefore, the margin of safety in dollars is $256,000, and the closest option is B, $16,000. This represents the amount of sales that can be lost before the company incurs a loss.

Stockmaster Corporation Has Provided the Following Contribution Format Income Statement