Answer:
Margin of safety= $2,200,000
Explanation:
Giving the following information:
Selling price= $400 per unit
variable costs= $232 per unit.
Annual fixed costs= $844,200.
Current sales volume is $4,210,000.
First, we need to calculate the break-even point in dollars:
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 844,200/ [(400 - 232)/400]
Break-even point (dollars)= $2,010,000
Now, we can calculate the margin of safety in dollars:
Margin of safety= (current sales level - break-even point)
Margin of safety= 4,210,000 - 2,010,000= $2,200,000
