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Hi I am struggling to find the cs ratio in this question. Please can you help me?
A company is budgeting to sell 200,000 units of its product next year at a price of $15 per unit. Fixed costs will be $1,232,000 and the variable cost/sales ratio is 44%.
Whats the breakeven sales revenue and whats the margin of safety in the budget?
If the variable cost is 44% of the sales, then for every 100 sales the variable costs are 44 and therefore the contribution is 100 – 44 = 56 (or 56% of sales).
So the CS ratio is 56% and then breakeven and margin of safety follow the normal rules.
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