Answer:
Instructions are below.
Explanation:
<u> 1) Canace Company:</u>
break-even point= $283,200
Actual sales= $480,000
<u>To calculate the margin of safety, we need to use the following formula:</u>
<u />
Margin of safety= (current sales level - break-even point)
Margin of safety= 480,000 - 283,200= $196,800
<u>Now, the margin of safety ratio:</u>
<u />
Margin of safety ratio= (current sales level - break-even point)/current sales level
Margin of safety ratio= 196,800 / 480,000
Margin of safety ratio= 0.41
<u>2) </u>
Margin of safety ratio= 0.40
Fixed costs= $1,725,600
Variable costs were 60% of sales.
<u>First, we need to calculate the contribution margin ratio:</u>
contribution margin ratio= 1 - variable costs ratio
contribution margin ratio= 0.4
<u>Now, we can calculate the break-even point in dollars:</u>
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 1,725,600/0.4
Break-even point (dollars)= $4,314,000
<u>Now, current sales:</u>
Margin of safety ratio= (current sales level - break-even point)/current sales level
0.4 = (current sales level - 4,314,000) / current sales level
0.4current sales level = current sales level - 4,314,000
4,314,000 = 0.6current sales level
$7,190,000 = current sales level