Energy-wise Builders, Inc., a leader in residential housing, recently negotiated a financing arrangement with First Pennsylvania
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Answer:
Margin Of Safety= $275,862
Explanation:
We can calculate the margin of safety easily by the formula given below
Formula: Margin of safety = Budgeted sales - Breakeven sales
As breakeven sales are not given in the data Firstly we need to find out break even sales in order to calculate margin of safety
Breakeven sales=
As you can see in the data fixed cost s given but contribution margin ratio is not
Contribution margin(Sales revenue - All variable cost)= $1,000,000 - ($270,000 + $240,000 + $150,000 + $50,000) = $1,000,000 - $710,000 = $290,000
Sales price per unit = Total sales/Number of units sold
Sales price per unit= $1,000,000/50,000 = $20
Budgeted contribution margin= $290,000/50,000 = $5.80
Contribution margin ratio = Budgeted contribution margin per unit/Sales price per unit
Contribution margin ratio = $5.80/$20 = 29%
Lets put values in breakeven formula to find breakeven sales
Breakeven sales=
Breakeven sales=
Breakeven sales= $724,138
Now we have both budgeted sales and breakeven sales, we can easily calculate e of safety
Margin of safety = $1,000,000- $724,138
Margin of safety = $275,862