The following is Allison Corporation's contribution format income statement for last month:

The company has no beginning or ending inventories. The company produced and sold 10,000 units last month.
-What is the company's margin of safety percentage?

Question

The following is Allison Corporation's contribution format income statement for last month:

The company has no beginning or ending inventories. The company produced and sold 10,000 units last month.
-What is the company's margin of safety percentage?

Quizplus · Accepted Answer

CM ratio = Contribution margin F1F1F1S1F1F1F10 Sales
= $500,000 F1F1F1S1F1F1F10 $800,000 = 0.625
Dollar sales to break even = Fixed expenses F1F1F1S1F1F1F10 CM ratio
= $400,000 F1F1F1S1F1F1F10 0.625 = $640,000
Margin of safety in dollars = Total actual sales - Break-even sales
= $800,000 - $640,000 = $160,000
Margin of safety percentage = Margin of safety in dollars F1F1F1S1F1F1F10 Total actual sales
= $160,000 F1F1F1S1F1F1F10 $800,000 = 0.20

The Following Is Allison Corporation's Contribution Format Income Statement for Last