Use the information below to answer the following question(s).
Southwest Electric Co-op has variable expenses of 20% of sales and monthly fixed expenses of $150,000. The monthly target operating income is $50,000.
-What is the monthly margin of safety as a percentage of target sales in dollars at Southwest Electric Co-op?

Question

Quizplus · Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-even Sales) / Actual Sales. First, calculate the break-even sales: Fixed Expenses / (1 - Variable Expense Ratio) = $150,000 / (1 - 0.20) = $187,500. Target sales for $50,000 operating income: ($150,000 + $50,000) / 0.80 = $250,000. Margin of safety: ($250,000 - $187,500) / $250,000 = 25%.

Use the Information Below to Answer the Following Question(s)