Stockmaster Corporation has provided the following contribution format income statement.All questions concern situations that are 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.All questions concern situations that are 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

CM ratio = Contribution margin ÷ Sales = $128,000 ÷ $320,000 = 40%
Dollar sales to break even = Fixed expenses ÷ CM ratio = $121,600 ÷ 40% = $304,000
Margin of safety in dollars = Total budgeted (or actual) sales - Break-even sales
= $320,000 − $304,000 = $16,000

Stockmaster Corporation Has Provided the Following Contribution Format Income Statement