Matthew's Fish Fry has a monthly target operating income of $6600. Variable expenses are 80% of sales and monthly fixed expenses are $840. What is the monthly margin of safety in dollars if the business achieves its operating income goal?

Question

Quizplus · Accepted Answer

First, we need to calculate the monthly sales needed to achieve the target operating income:

Target Operating Income = Sales - Variable Expenses - Fixed Expenses
$6600 = 0.20 Sales - $840
0.20 Sales = $7440
Sales = $37,200

Now we can calculate the margin of safety:

Margin of Safety = Total Sales - Break-Even Sales
Margin of Safety = $37,200 - ($37,200 / 1.20)
Margin of Safety = $37,200 - $31,000
Margin of Safety = $6,200

Therefore, the monthly margin of safety in dollars is $6,200. Choice B is the correct answer.

Matthew's Fish Fry Has a Monthly Target Operating Income of $6600