The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. If Burkett Corporation achieves the budgeted level of sales, what will be its margin of safety in dollars?
A) $172,420.
B) $150,000.
C) $262,500.
D) $275,862.
E) $310,115.

Question

The budgeted income statement presented below is for Burkett Corporation for the coming fiscal year. If Burkett Corporation achieves the budgeted level of sales, what will be its margin of safety in dollars? 
A) $172,420. 
B) $150,000. 
C) $262,500. 
D) $275,862. 
E) $310,115.

Quizplus · Accepted Answer

Sales Price Per Unit = Total Sales/Units Sold
Sales Price Per Unit = $1,000,000/50,000
Sales Price Per Unit = $20
Revenues − Variable Costs = Contribution Margin
$1,000,000 − ($270,000 + $240,000 + $150,000 + $50,000) = Contribution Margin
$1,000,000 − $710,000 = $290,000
$290,000/50,000 units to be sold = $5.80 budgeted contribution margin per unit
Contribution Margin Ratio = $5.80/$20
Contribution Margin Ratio = 29%
Break-even sales = Total Fixed Costs/Contribution Margin Ratio
Break-even sales = $210,000/29%
Break-even sales = $724,138
Margin of Safety in Dollars = Budgeted Sales − Break-even Sales
Margin of Safety in Dollars = $1,000,000 − $724,138
Margin of Safety in Dollars = $275,862

The Budgeted Income Statement Presented Below Is for Burkett Corporation