Respuesta :
Answer:
1) Margin of safety = $1,000,000 so that is c)
2) Margin of safety (%) = 20%, that is a)
Explanation:
Hi, first, we need to introduce the formulas to use.
Margin of safety (Dollars)
[tex]MarginSafety=ActualSales-BEP(dollars)[/tex]
Margin of safety (%)
[tex]MarginSafety=\frac{CurrentSales-BEP(dollars)}{CurrentSales} *100[/tex]
Where
BEP = Break even point in dollars
This means that we need to find the break even point first, the formula to use is:
[tex]BEP(units)=\frac{FixedExpenses}{Price-VarExpense}[/tex]
From there, we need the break even point in dollars, so:
[tex]BEP(dollars)=BEP(units)*Price[/tex]
Everything should look like this
[tex]BEP(units)\frac{1,000,000}{200-150} =20,000[/tex]
And the BEP in dollars is:
[tex]BEP(dollars)=20,000*200=4,000,000[/tex]
Now, we know that our actual level of sales is 25,000*$200=$5,000,000, therefore Ralph Corporation margin of safety is:
[tex]MarginSafety=5,000,000-4,000,000=1,000,000[/tex]
So, the answer is c. Ralph Corporation’s margin of safety in dollars is $1 million.
Now for the next part, everything should look like this.
[tex]MarginSafety(percent)=\frac{5,000,000-4,000,000}{5,000,000} *100=20[/tex]
Then, the answer is a. Ralph Corporation’s margin of safety in percentage is 20%
Best of luck.
