Question

Arthur Corporation has a margin of safety percentage of 25% based on its actual sales. The break-even point is $290,400 and the variable expenses are 45% of sales. Given this information, the actual profit is:(Do not round your intermediate calculations.)

Answer 1

Answer:

$53,240

Explanation:

We know that,

Break even point = Fixed cost ÷ contribution margin ratio

$290,400 = Fixed cost ÷ 55%

So, the fixed cost = $290,400 × 55% = $159,720

As the variable expense is 45% and we assume the sales is 100%, so the contribution ratio would be 100% - 45% = 55%

Now the margin of safety equal to

= (Expected sales - break even sales) ÷ (expected sales) × 100

25% = (Expected sales - $290,400) ÷ (expected sales) × 100

25% Sales = (Expected sales - $290,400)

So, the expected sales would be

= $290,400 ÷ 75%

= $387,200

Now the actual profit equals to

= Sales - variable expenses - fixed cost

= $387,200 - $174,240 - $159,720

= $53,240

The variable expense is computed below:

= $387,200 × 45%

= $174,240