Julia's Catering has a monthly target operating income of $6,000.Variable expenses are 40% of sales and monthly fixed expenses are $3,600.What is the monthly margin of safety as a percentage of target sales in dollars?

Question

Quizplus · Accepted Answer

The formula for margin of safety as a percentage of target sales in dollars is:

(Monthly sales - break-even sales) / monthly sales x 100%

To find the break-even sales, we need to first calculate the contribution margin:

Contribution margin = total sales - variable expenses
Contribution margin = 100% - 40%
Contribution margin = 60%

To find the break-even sales, we can use the formula:

Break-even sales = fixed expenses / contribution margin
Break-even sales = $3,600 / 60%
Break-even sales = $6,000

So, the monthly target sales are $6,000. Using the formula for margin of safety, we get:

Margin of safety = (Monthly sales - break-even sales) / monthly sales x 100%
Margin of safety = ($6,000 - $6,000) / $6,000 x 100%
Margin of safety = 0%

Therefore, the monthly margin of safety as a percentage of target sales in dollars is 0%.

To convert this into the requested format (percentage of target sales in dollars), we can simply remove the "%" sign and add a ".":

Answer: 0.00

Julia's Catering Has a Monthly Target Operating Income of $6,000