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A company has a margin of safety of 25%, a contribution margin ratio 30%, and sales of $1,000,000.
(a) What was the break-even point?
(b) What was the operating income?
(c) If neither the relationship between variable costs and sales nor the amount of fixed costs is expected to change in the next year, how much additional operating income can be earned by increasing sales by $110,000?

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Solution Summary

Computations are shown for you in Excel (attached, click in cells to see calculations). The trick here is to solve for breakeven sales and then finding fixed costs. A reference is given for margin of safety.

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Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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