Question

Golebiewski Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (5,000 units) $ 150,000 Variable expenses 112,500 Contribution margin 37,500 Fixed expenses 35,250 Net operating income $ 2,250 The margin of safety in dollars is closest to:

Answer 1

Answer:

Margin of safety= $9,000

Explanation:

First, we need to calculate the selling price and unitary variable cost:

Selling price= 150,000 / 5,000= $30

Unitary varaible cost= 112,500 / 5,000= $22.5

Now, we need to determine the break-even point in dollars:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 35,250 / [(30 - 22.5) / 30]

Break-even point (dollars)= 35,250 / 0.25

Break-even point (dollars)= $141,000

Finally, the margin of safety in dollars:

Margin of safety= (current sales level - break-even point)

Margin of safety= 150,000 - 141,000

Margin of safety= $9,000