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

Margin of safety in dollars = Total Sales - Break-even Sales
= $360,000 - $200,000
= $160,000

Therefore, the closest option is B) $16,000. 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