A company makes a single product that it sells for $16 per unit. Fixed costs are $76,800 per month and the product has a contribution margin ratio of 40%. If the company's actual sales are $224,000, its margin of safety is:
A) $32,000
B) $96,000
C) $128,000
D) $192,000

Question

Quizplus · Accepted Answer

The margin of safety is the difference between actual sales and breakeven sales. Breakeven sales are calculated by dividing fixed costs by the contribution margin ratio. In this case, breakeven sales are $76,800 / 0.40 = $192,000. The margin of safety is therefore $224,000 - $192,000 = $32,000.

A Company Makes a Single Product That It Sells for $16