The following information was taken from Wampler Co.'s contribution income statement:

Sales $200,000
Variable costs 120,000
Fixed costs 60,000
Operating profit 20,000

What was Wampler's margin of safety percentage?

Question

The following information was taken from Wampler Co.'s contribution income statement:

Sales	$200,000
Variable costs	120,000
Fixed costs	60,000
Operating profit	20,000

What was Wampler's margin of safety percentage?

BlackTom AI · Accepted Answer

We begin by restating the data given: Sales = 200,000; Variable costs = 120,000; Fixed costs = 60,000; Operating profit = 20,000.

First, compute the contribution margin: Contribution margin = Sales − Variable costs = 200,000 − 120,000 = 80,000. This gives the contribution margin ratio: CM ratio = Contribution margin / Sales = 80,000 / 200,000 = 0.40 (or 40%).

Next, determine the break-even sales in dollars using the CM ratio: Break-even sales = Fixed costs / CM ratio = 60,000 / 0.40 = 150,000.

Now, calculate the margin of safety in dollars: Margin of safety (MOS) in dollars = Actual sales − Break-even sales = 200,000 − 150,000 = 50,000.

Finally, convert MOS to a percentage of sales: MOS percentage = MOS in dollars / Sales = 50,000 / 200,000 = 0.25 (or 25%).

Notes on potential answer choices (even though options aren’t listed here):
- If you used an alternative method, ensure you convert to a ratio of sales rather than a ratio to profits, and verify your CM ratio before computing break-even.
- A common trap is misplacing fixed costs or using the operating profit instead of the contribution margin; the correct approach relies on contribution margin (sales minus variable costs) to find break-even and MOS.
- The given operating profit of 20,000 is consistent with the numbers: 80,000 CM minus 60,000 fixed costs equals 20,000 operating profit, which corroborates the internal consistency of the data.

If options were available, you would compare the calculated MOS percentage (25%) to each option to determine which matches exactly.

2025Summer-ACC2002-02 Quiz 2 - Cost / Volume / Profit (CVP)

The following information was taken from Wampler Co.'s contribution income statement: Sales $200,000 Variable costs 120,000 Fixed costs 60,000 Operating profit 20,000 What was Wampler's margin of safety percentage?

View Explanation

Log in for full answers

Similar Questions

In CVP analysis the margin of safety is the:

Question at position 25 A company makes a single product that it sells for $16 per unit. Fixed costs are $76,800 per month and the product has a contribution margin ratio of 40%. If the company's actual sales are $224,000, its margin of safety is:$32,000$192,000$128,000$96,000

Simpson Manufacturing sells a product for $1,600 per unit. Fixed costs are $34,000, while the variable costs are $600 per unit. If the company has a 15% margin of safety, how many units were actually sold?

The cost card for RTY Ltd.’s single product is shown below: £ Direct material 6 Direct labour 4 Variable production overhead 2 Total variable cost £12 Total fixed cost £60,000 Budgeted sales are 20,000 units at a selling price of £20 per unit. The margin of safety is:

The margin of safety is the amount by which sales can decrease before losses are incurred by the company.

Black Company's sales are $565,000, its fixed expenses are $150,000, and its variable expenses are 60% of sales. Based on this information, the margin of safety (number of sales dollars that can be safely lost) is:

More Practical Tools for International Students

Homework AI Solver

Stylized Writing Assistant

Plagiarism Checker Assistant

Citation Assistant

In-Class Translation Assistant

Class Notes Assistant

Quiz Search Assistant

Past Exam Questions by School

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler