Cross Creek Company sells concrete culverts.Currently, the company's sales revenue is $900,000, variable costs total $450,000, and fixed costs total $300,000.If Cross Creek's controller has calculated the company's breakeven point to be $597,000, what is the company's margin of safety?

Question

Quizplus · Accepted Answer

Breakeven point = Fixed costs / Contribution margin per unit
Contribution margin per unit = Sales price per unit - Variable cost per unit
$597,000 = $300,000 / (Sales price per unit - $225)
Sales price per unit = $750
Contribution margin per unit = $525

Units sold at breakeven point = (Fixed costs + Variable costs) / Sales price per unit
Units sold at breakeven point = ($300,000 + $450,000) / $750 = 800

Margin of safety = Actual or expected sales - Breakeven sales
Margin of safety = $900,000 - ($750 * 800) = $303,000.

Therefore, the correct answer is choice C.

Cross Creek Company Sells Concrete Culverts