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Hi
A company produces and sells a single product. Budgeted sales are $2.4 million, budgeted fixed costs are $360,000 and the margin of safety is $400,000. What are budgeted variable costs?
Breakeven sales = $(2.4 million – 400,000) = $2,000,000
Contribution at this level of sales = $360,000
Therefore contribution/sales ratio = 360,000/2,000,000 = 18%
Variable costs = 82% of sales
At a sales level of $2.4 million, variable costs = 82% × $2.4 million = $1.968 million
this is the answer given in the text , isnt this wrong?
thanks
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- ☆☆
To find the breakeven sales, you subtract the margin of safety from the total budgeted sales. This is because the margin of safety represents the portion of sales above the breakeven point. Therefore, subtracting it from the total sales gives us the breakeven point. At breakeven sales, the contribution is equal to the fixed costs, which are given as $360,000.
I am sorry ,I should have looked into the question a bit more ,
There is no option to delete the comment , sorry.
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