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Question: Budgeted sales are $2.4million, budgeted fixed costs are $360,000 and the margin of safety is $400,000. What are the budgeted variable costs?
The answer is $1.968 Million but I am confused on how to calculate it.
I did:
margin of safety= budget sales- breakeven sales.. 400,000=2400000- break even sales
therefore breakeven sales = $2,000,000
$2M – $360k = 1.640 million.Please help
Breakeven is when the sales are $2 million.
At breakeven the contribution is equal to the fixed costs and is therefore $360,000.
Therefore the variable costs when sales are $2 million are 2,000,000 – 360,000 = $1,640,000.
If sales are budgeted at $2.4M, then the variable costs will be budgeted at 2.4/2 x $1,640,000 = $1,968,000
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