Answer:
Explanation:
a. The margin of safety will be calculated first and this will be:
= Actual sales - Break even sales
= $1,200,000 - $960,000
= $240,000
The margin of safety expressed as a percentage of sales will then be:
= 240,000/1200000 × 100
= 1/5 × 100
= 20%
b. Firstly, we have to calculate the break even sales which will be:
= Fixed cost / Contribution margin ratio
= 1875000 / (100% - 80%)
= 1875000/20%
= 1875000/0.2
= $9,375,000
Then, to calculate the actual sales goes thus:
% Margin of safety = Margin of safety / Actual sales.
20% = (Actual sales - 9375000) / Actual sales
0.2 × Actual sales = Actual sales - 9375000
Actual sales = $11,718,750
