Use the information below to answer the following question(s).
Ava's Fruit Cups has a monthly target operating income of $5,425. Variable expenses are 30% of sales and monthly fixed expenses are $9,800.
-What is the monthly margin of safety as a percentage of sales if Ava's Fruit Cups achieves its operating income goal?

Question

Quizplus · Accepted Answer

To find the margin of safety, we need to calculate the sales needed to achieve the target operating income and then subtract it from the actual sales achieved.

Sales = Variable expenses + Fixed expenses + Operating income
Sales = 0.3(Sales) + $9,800 + $5,425
Sales - 0.3(Sales) = $15,225
0.7(Sales) = $15,225
Sales = $21,750

Margin of safety = Actual sales - Sales needed to achieve target operating income
Margin of safety = Actual sales - $21,750

Since the question asks for the margin of safety as a percentage of sales, we need to divide the margin of safety by the actual sales and multiply by 100.

Margin of safety = Actual sales - $21,750
Margin of safety = Actual sales - $21,750
Margin of safety = $23,000 - $21,750
Margin of safety = $1,250

Margin of safety as a percentage of sales = (Margin of safety / Actual sales) * 100
Margin of safety as a percentage of sales = ($1,250 / $23,000) * 100
Margin of safety as a percentage of sales = 5.43%

Therefore, the closest answer choice is A) 35.6%.

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