Question

If the margin of safety for canace company was 20%, fixed costs were $1,875,000, and variable costs were 80% of sales, what was the amount of actual sales (dollars)? (hint: de- termine the break-even in sales dollars f

Answer 1

Calculation of amount of actual sales (dollars):

Step-1: Calculation of break-even in sales dollars:

Break-even in sales dollars = Fixed costs / (100%- Variable Cost %)

Break-even in sales dollars = 1875000 /(100%-80%)

Break-even in sales dollars = 1875000 /20%

Break-even in sales dollars = $9,375,000

Step-2: Calculation of actual sales:

Actual Sales = Break-even in sales dollars / (100% -Margin of safety %)

Actual Sales = 9375000 /(100%-20%)

Actual Sales = 9375000 /80%

Actual Sales = $11,718,750

Hence, the Amount of actual sales (dollars) is $11,718,750