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Margin of Safety

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Pricher Corporation's income statement for last year appears below:

Sales 2,000,000
Cost of goods sold:
Direct materials 500,000
Direct labor (variable) 150,000
Variable manufacturing overhead 50,000
Fixed manufacturing overhead 600,000 1,300,000
Gross margin 700,000
Selling and administrative expenses:
Variable 100,000
Fixed 300,000 400,000
Net operating income 300,000

Reference: 6-20

If fixed selling and administrative expenses increase by 60,000 and sales remain at the 2,000,000 level, what is the margin of safety in sales dollars:

500,000
400,000
300,000
200,000

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Margin of Safety is discussed.

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Margin of Safety is the excess of budgeted (actual) sales over the breake even volume os sales.

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