Answer the following questions using the information below:
Dr Charles Hunter,MD,performs a certain outpatient procedure for $1000.His fixed costs are $20 000,while his variable costs are $500 per procedure.Dr Hunter currently plans to perform 200 procedures this month.
-What is the margin of safety assuming 100 procedures are budgeted?

Question

Quizplus · Accepted Answer

Margin of safety = actual sales – breakeven sales

First, we need to find the breakeven point:

Breakeven point (in number of procedures) = Fixed costs / (Price per procedure – Variable costs per procedure)

Breakeven point = $20,000 / ($1,000 - $500) = 40 procedures

Now, we can find the actual sales and the margin of safety based on the information given:

Actual sales for 200 procedures = $1000 * 200 = $200,000

Breakeven sales for 100 procedures = $1000 * 100 = $100,000

Margin of safety = $200,000 - $100,000 = $100,000 or 100 times

Therefore, the answer is (C) and the explanation shows that the margin of safety is $60,000, which means that Dr. Hunter can afford to lose up to $60,000 in sales before reaching the breakeven point.

Answer the Following Questions Using the Information Below