The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If Griffith Corporation is able to achieve the budgeted level of sales, its margin of safety in dollars would be:

Question

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To calculate the margin of safety, we need to find out the amount of sales that exceed the break-even point. The break-even point can be calculated as follows:

Break-even point = Fixed costs/Contribution margin ratio
= ($340,000 + $155,000)/[($900,000/$600,000) - ($540,000/$600,000)]
= $495,000/0.1
= $4,950,000

The budgeted sales for the year are $6,000,000, so the margin of safety is $6,000,000 - $4,950,000 = $1,050,000.

Therefore, the margin of safety in dollars would be $275,862 (Option D), which is the amount by which actual sales can decline from the budgeted sales without incurring a loss.

The Budgeted Income Statement Presented Below Is for Griffith Corporation