Answer:
Results are below.
Explanation:
Giving the following information:
Actual sales= $2,000,000
Fixed costs= $510,000
Contribution margin ratio= 0.3
<u>First, we need to calculate the break-even point in sales dollars:</u>
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 510,000 / 0.3
Break-even point (dollars)= $1,700,000
<u>Now, the margin of safety:</u>
Margin of safety= (current sales level - break-even point)
Margin of safety= 2,000,000 - 1,700,000
Margin of safety= $300,000
<u>Finally, the margin of safety ratio:</u>
<u></u>
Margin of safety ratio= (current sales level - break-even point)/current sales level
Margin of safety ratio= 300,000 / 2,000,000
Margin of safety ratio= 0.15 = 15%