During the current year, OutlyTech Corp. expected to sell 24,000 telephone switches. Fixed costs for the year were expected to be $12,144,000, the unit sales price was budgeted at $3,200, and unit variable costs were budgeted at $1,440.
OutlyTech's margin of safety (MOS) in sales dollars is:

Question

Quizplus · Accepted Answer

The margin of safety (MOS) in sales dollars is calculated as actual (or expected) sales minus break-even sales. First, we need to calculate the break-even point in units, which is done by dividing the total fixed costs by the contribution margin per unit (sales price per unit minus variable cost per unit). Then, we calculate the break-even sales in dollars and subtract it from the expected sales in dollars.Break-even point in units = Total Fixed Costs / (Sales price per unit - Variable cost per unit)= $12,144,000 / ($3,200 - $1,440)= $12,144,000 / $1,760= 6,900 unitsBreak-even sales in dollars = Break-even units * Sales price per unit= 6,900 units * $3,200= $22,080,000Expected sales in dollars = Expected units sold * Sales price per unit= 24,000 units * $3,200= $76,800,000Margin of Safety in sales dollars = Expected sales in dollars - Break-even sales in dollars= $76,800,000 - $22,080,000= $54,720,000

During the Current Year, OutlyTech Corp