Answer:
Margin of safety= $275,862
Explanation:
Giving the following information:
Sales (50,000 units) $1,000,000
Costs:
Direct materials $270,000
Direct labor 240,000
Fixed factory overhead 100,000
Variable factory overhead 150,000
Fixed marketing costs 110,000
Variable marketing costs 50,000
First, we need to calculate the total variable costs and total fixed costs:
Total variable costs= 270,000 + 240,000 + 150,000 + 50,000
Total variable costs= 710,000
Total fixed costs= 100,000 + 110,000= 210,000
Now, we need to determine the break-even point in dollars:
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 210,000 / [(1,000,000 - 710,000)/1,000,000]
Break-even point (dollars)= 210,000/0.29
Break-even point (dollars)= 724,138
Finally, the margin of safety in dollars:
Margin of safety= (current sales level - break-even point)
Margin of safety= 1,000,000 - 724,138
Margin of safety= $275,862
