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Assume Sparkle Co
Assume Sparkle Co. expects to sell 150 units next month. The unit sales price is $80, unit variable cost is $35, and the fixed costs per month are $5,000. The margin of safety in terms of sales revenue is:
Round to two decimal places.
Expert Solution
Computation of Margin of Safety in terms of Sales Revenue:
Contribution Margin Ratio = (Sales Price per Unit - Variable Cost per Unit)/ Sales Price per Unit
= ($80 - $35) / $80
= 56.25%
Break-even Point in dollars (BEP) = Fixed Cost / Contribution Margin Ratio
= $5,000 / 56.25%
= $8,888.89
Margin of Safety = (Units Sold* Sales Price per Unit) - Break-even Point in dollars
= (150 * $80) - $8,888.89
= $12,000 - $8,888.89
= $3,111.11
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