Spire Ridge Company produces bells.Fixed costs are $800,000.Variable costs per bell are $60.00,and each bell sells for $100.00.The company' sales budget calls for sales of 24,000 units. At the budgeted level of sales,what is the margin of safety ratio?

Question

Quizplus · Accepted Answer

Margin of safety ratio = (Total sales - Break-even sales)/(Total sales)

Break-even sales = Total fixed costs/Contribution margin per unit
Contribution margin per unit = Selling price per unit - Variable cost per unit = $100.00 - $60.00 = $40.00

Break-even sales = $800,000/$40 = 20,000 units

Total sales = 24,000 units

Margin of safety ratio = (24,000 - 20,000)/24,000 = 4,000/24,000 = 0.1667 or 16.67%

Therefore, the best choice is B.

Spire Ridge Company Produces Bells