Answer:
Instructions are below.
Explanation:
Giving the following information:
Before:
Fixed costs= 270,000
Selling price= $40
Unitary variable cost= $24
Sales in units= 20,000
After:
Fixed costs= 294,000
Selling price= $38
Unitary variable cost= $24
Sales in units= 24,000
<u>First, we need to calculate the break-even point in units:</u>
Break-even point in units= fixed costs/ contribution margin per unit
<u>Before:</u>
Break-even point in units= 270,000/ (40 - 24)
Break-even point in units= 16,875 units
<u>After:</u>
Break-even point in units= 294,000/14
Break-even point in units= 21,000 units
<u>Now, the margin of safety ratio:</u>
Margin of safety ratio= (current sales level - break-even point)/current sales level
<u>Before:</u>
Margin of safety ratio= (20,000 - 16,875)/20,000
Margin of safety ratio= 0.156
<u>After:</u>
Margin of safety ratio= 3,000/24,000
Margin of safety ratio= 0.125
