Ricky's Repair Shop has a monthly target profit of $ 28,000. Variable costs are 80 % of sales, and monthly fixed costs are $ 12,000. Requirements 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal. 2. Express Ricky's margin of safety as a percentage of target sales.

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RenatoMattice RenatoMattice · Answer 1 · 2019-07-22T13:42:04+02:00

Answer: Margin of Safety(MOS) in dollars= $1,40,000

Margin of Safety(MOS) as a percentage of target sales = 70%

Explanation:

Given:

Target profit = $28000

Variable costs = 80 % of sales

Contribution = 20 % of sales

Fixed Costs = $12000

Required sales in units = [tex]\frac{Fixed Costs +Target profit }{Contribution margin per unit}[/tex]

Using the given in above formula;

Required sales in dollars = [tex]\frac{12000+0}{20}[/tex]

=$60000

Target sales = [tex]\frac{(Fixed Costs + Target profit)}{Contribution}[/tex]

Target sales = $200000

Margin of Safety(MOS) in dollars = Target Sales - Break-even point sales

Margin of Safety(MOS) in dollars = $200000 - $60000 = $140000

Margin of Safety(MOS) as a percentage of target sales = [tex](\frac{140000}{200000})\times 100[/tex]

=70%