The Mildmanner Corporation has the following data for 2014: The margin of safety expressed in sales revenue will be

Question

The Mildmanner Corporation has the following data for 2014:  The margin of safety expressed in sales revenue will be

Quizplus · Accepted Answer

Margin of safety is the difference between the actual sales revenue and the breakeven sales revenue. 
Breakeven sales revenue = Total fixed costs / Contribution margin ratio
Contribution margin ratio = (Sales revenue - Variable costs) / Sales revenue
From the given data, 
Total fixed costs = $300,000
Contribution margin ratio = 40% or 0.4
Breakeven sales revenue = $300,000 / 0.4 = $750,000
Actual sales revenue = $787,500
Margin of safety = Actual sales revenue - Breakeven sales revenue
= $787,500 - $750,000
= $37,500. 
Therefore, the correct choice is B.

The Mildmanner Corporation Has the Following Data for 2014