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

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BlackTom AI · Accepted Answer

To approach this problem, I’ll restate the givens and then examine what each potential MOS value would imply.
- Selling price per unit: 16
- Fixed costs: 76,800 per month
- Contribution margin ratio: 40% (i.e., CM per dollar of sales = 0.40; CM per unit = 0.40 × 16 = 6.40)
- Actual sales: 224,000

First, compute the break-even point in dollars using the CM ratio:
- Break-even sales = Fixed costs / CM ratio = 76,800 / 0.40 = 192,000
- Margin of safety (in dollars) = Actual sales − Break-even sales = 224,000 − 192,000 = 32,000

Now, evaluate each option:
- Option $32,000: This matches the calculated MOS. If actual sales exceed break-even by 32,000, this is exactly the margin of safety in dollars.
- Option $192,000: This number is equal to the break-even sales level itself, not the margin above that level. Interpreting MOS as this would imply zero margin above BE, which is incorrect given actual sales exceed BE by some amount.
- Option $128,000: This figure does not align with any standard MOS interpretation from the provided data. It could be a confusion with something like total contribution or a misapplied calculation, but it isn’t MOS.
- Option $96,000: Similarly, this value isn’t tied to the difference between actual sales and BE sales under the given CM ratio and fixed costs.

In summary, only the first option corresponds to the margin of safety in dollars calculated from the given data. The other figures reflect either the break-even sales level, or alternate, unsupported interpretations, and thus do not represent the MOS in this scenario.

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

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