Matthew's Fish Fry has a monthly target operating income of $8,300. Variable expenses are 80% of sales and monthly fixed expenses are $800. What is the monthly margin of safety as a percentage of target sales in dollars?

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TomShelby TomShelby · Answer 1 · 2019-07-23T04:20:23+02:00

Answer:

Margin of Safety as percent of sales 91.21%

Explanation:

[tex]Sales \: Revenue - Variable \: Cost = Contribution \: Margin[/tex]

If variable = 80% of sales then

sales - 80% sales = .20 sales = Contribution margin ratio

Next will be calcualte the BEP

[tex]\frac{Fixed\:Cost}{Contribution \:Margin \:Ratio} = Break\: Even\: Point_{dollars}[/tex]

800/0.2 = 4,000

Sales to achieve target income of 8,300

[tex]\frac{Fixed\:Cost + taget \: profit}{Contribution \:Margin \:Ratio} = Sales\: to\: Profit{dollars}[/tex]

(800+8,300)/.2 = 45,500

Margin of safety:

[tex]\frac{current \:sales - BEP_{USD}}{current \:sales} \times 100 = margin \: of \: safety[/tex]

[tex]\frac{45,500 - 4,000}{45,500} \times 100 = 91.21%[/tex]