Question

TB MC Qu. 6-70 Awtis Corporation has a margin of ... Awtis Corporation has a margin of safety percentage of 25% based on its actual sales. The break-even point is $213,600 and the variable expenses are 45% of sales. Given this information, the actual profit is:

Answer 1

Answer:

$39,160

Explanation:

Awtis corporation has a margin of safety percentage of 25%

= 25/100

= 0.25

The break even point is $213,600

The variable expenses is 45%

= 45/100

= 0.45

The first step is to calculate the contribution margin ratio

Contribution margin ratio= 1-variable expenses

= 1-0.45

= 0.55

The fixed expenses can be calculated as follows

Fixed expenses= break even sales × contribution margin ratio

= $213,600×0.55

= 117,480

The total actual sales can be calculated as follows

= Break even sales/(1-margin of safety)

= $213,600/(1-0.25)

= $213,600/0.75

= $284,800

Therefore, the actual profit can be calculated as follows

Actual profit= Contribution margin ratio×sales - fixed expenses

= 0.55×284,800-$117,480

= $156,640-$117,480

= $39,160

Hence the actual profit is $39,160