The Blue Saints Band is holding a concert in Toronto.Fixed costs relating to staging a concert are $350,000.Variable costs per patron are $5.00.The selling price for a tickets $25.00.The Blue Saints Band has sold 24,000 tickets so far.
At the current level of sales,what is the margin of safety in dollars?

Question

The Blue Saints Band is holding a concert in Toronto.Fixed costs relating to staging a concert are $350,000.Variable costs per patron are $5.00.The selling price for a tickets $25.00.The Blue Saints Band has sold 24,000 tickets so far. ​
At the current level of sales,what is the margin of safety in dollars?

Quizplus · Accepted Answer

To find the margin of safety, we need to calculate the difference between the actual sales revenue and the break-even revenue.

Actual Sales Revenue = Selling Price per ticket x Number of tickets sold
= $25.00 x 24,000
= $600,000

Break-even Revenue = Fixed Costs/Contribution Margin Ratio
= $350,000/($25.00 - $5.00)
= $350,000/$20.00
= $17,5000

Margin of Safety = Actual Sales Revenue - Break-even Revenue
= $600,000 - $175,000
= $425,000

Therefore, the margin of safety in dollars is $425,000, which is closest to option A ($162,500).

The Blue Saints Band Is Holding a Concert in Toronto