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# Margin of safety in terms of dollars

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JJ company offers 2 products. At the present, the following represents the usual results of a month's operations:

Product K Product L

Amount Per Unit Amount Per unit Combined amount

Sales revenue \$120,000 \$1.20 \$80,000 \$0.80 \$200,000
Variable expenses \$60,000 0.60 60,000 \$0.60 120,000
Contribution margin \$60,000 \$0.60 \$20,000 \$0.20 \$80,000

Fixed expenses

50,000 (combined amount)
Net operating income
\$30,000 (combined amount)

a-Find the break-even point in terms of dollars
b-Find the margin of safety in terms of dollars
c-The company is considering decreasing product K's unit sales to 80,000 and increasing product L's unit sales to 180,000 leaving unchanged the selling price per unit, variable expense per unit, and total fixed expenses. Would you advise adopting this plan?
d-Refer to (c) above. Under the new plan, find the break-even point in terms of dollars.
e-Under the new plan (c) above, find the margin of safety in terms of dollars.

#### Solution Preview

J company offers 2 products. At the present, the following represents the usual results of a month's operations:

Product K Product L

Amount Per Unit Amount Per unit Combined amount

Sales revenue \$120,000 \$1.20 \$80,000 \$0.80 \$200,000
Variable expenses \$60,000 0.60 60,000 \$0.60 120,000
Contribution margin \$60,000 \$0.60 \$20,000 \$0.20 ...

#### Solution Summary

This provides the steps to calculate the margin of safety in terms of dollars

\$2.19