Answer:
$200,000
Explanation:
The computation of the margin of safety in sales dollars is show below:
Margin of safety in sales dollars = Expected sales - break even sales
where,
Expected sales = $1,200,000
Break even sales equal to
= Fixed cost ÷ Contribution margin ratio
where,
The contribution margin ratio is
= 100 - 40%
= 60%
And, the fixed cost is
Sales $1,200,000
Less: Variable cost -$720,000
Contribution margin $480,000
Less: Fixed cost -$400,000
Operating profits $80,000
So, the break even sales is
= $400,000 ÷ 40%
= $1,000,000
So, the margin of safety is
= $1,200,000 - $1,000,000
= $200,000
