Question

Stockmaster Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (8,000 units) $ 320,000 Variable expenses 192,000 Contribution margin 128,000 Fixed expenses 121,600 Net operating income $ 6,400 The margin of safety in dollars is closest to: Multiple Choice $121,600 $128,000 $6,400 $16,000

Answer 1

Answer:

$16,000

Explanation:

Calculation to determine what The margin of safety in dollars is closest to

First step is to calculate the Contribution margin ratio using this formula

Contribution margin ratio=Contribution margin/Sales

Let plug in the formula

Contribution margin ratio=(128,000/320,000)

Contribution margin ratio=0.4

Second step is calculate the breakeven sales using this formula

Breakeven sales=(Fixed cost/Contribution margin ratio)

Let plug in the formula

Breakeven sales=121600/0.4

Breakeven sales=$304,000

Now let determine the Margin of safety using this formula

Margin of safety=Total sales-Breakeven sales

Let plug in the formula

Margin of safety=320,000-304,000

Margin of safety=$16,000

Therefore The margin of safety in dollars is closest to: $16,000