Question

​matthew's fish fry has a monthly target operating income of​ $7,200. variable expenses are​ 60% of sales and monthly fixed expenses are​ $1,800. what is the monthly margin of safety as a percentage of target sales in​ dollars?

Answer 1

Given, Operating income = 7,200

Fixed expenses = 1800

Let the target sales be assumed to be X

Sales = 7200 + 1800 + 0.6*Sales

X = 7200 +1800 +0.6X

X-0.6X = 9000

0.4X =9000

X = 22,500

Target Sales = 22,500

Break even point = Fixed Costs/(Price -Variable cost)

Break even point = 1,800/(1-0.6) = 1,800/0.4 = 4,500

Break even point =4,500

Margin of Safety = (Target sales - break even point)/ Target Sales

Margin of Safety = (22,500-4,500)/22,500 = 18,000/22,500 = 0.8 = 80%

Margin of Safety =80%

Answer 2

Break Even Point (BEP)

= Fixed Cost / (selling price per unit - Variable cost per unit)

= $ 1,800 / (40 - 30)

= 180 units

Safety Margin

= (Total Sales - BEP) / Total Sales

= ($ 7,200 - $ 1,800) / $ 7,200

= 75%. calculate the breakeven point in the unit

Further Explanation

The margin of safety is the difference between budgeted sales and breakeven sales. Companies need to calculate the margin of safety to find out how sales can go down from plan to tolerable levels before the company suffers a loss. The margin of safety is a criterion that can be used to evaluate the adequacy of a sales plan.

Introduced by Benjamin Graham. The concept of the Margin of Safety (MoS) is emphasizing the difference between the stock price and the fair price (intrinsic). The concept of Margin of Safety (MoS) is needed by investors and companies, especially long-term investors.

Simple analogy like this, for example, we are a business of buying and selling milk, the fair price of one liter of milk is Rp 10,000. Consider all quality milk tested and good. One day a supplier from a new farm comes and offers us a liter of milk for Rp. 9500, then Rp. 500 is the limit of our security. We believe that if we buy from it, we are still safe. If we could bargain even cheaper, our security limits would be even better. That is a simple analogy to the limits of security.

Knowing the margin of safety will benefit the company's progress in knowing the safety limits of its sales conditions and also knowing how much should be produced so that sales approach the break-even point.

The break-even point is a point where the amount of income equals the number of costs, in other words, profit equals zero. The company in general aims to achieve the expected level of profit. With this break-even analysis, the company can plan the level of production and or sales volume that will generate profits.

Learn More

Margin of Safety brainly.com/question/11181701

Break-Event Point brainly.com/question/11181701

Details

Class: College

Subject: Business

Keyword: MoS, BEP, calculate