Use the information below to answer the following question(s).
Hartville Kitchens has a monthly target operating income of $18,000. Variable expenses are 25% of sales and monthly fixed expenses are $12,000.
-What is the monthly margin of safety in dollars if Hartville Kitchens achieves its operating income goal?

Question

Quizplus · Accepted Answer

The margin of safety is the difference between actual sales and the break-even point. The break-even point is the level of sales at which the company has no profit or loss. To calculate the break-even point, we need to divide the fixed expenses by the contribution margin. The contribution margin is the difference between sales and variable expenses. In this case, the contribution margin is 75% of sales. So, the break-even point is $12,000 / 0.75 = $16,000. The margin of safety is $18,000 - $16,000 = $2,000.

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