Question

Margin of Safety Molson-Coors Brewing Company (TAP) reported the following operating information for a recent year (in millions): Sales $3,568 Cost of goods sold (2,164) Gross profit $1,404 Marketing, general, and admin. expenses (1,052) Operating income $ 352* *Before special items Assume that Molson-Coors sold 120 million barrels of beer during the year, variable costs were 70% of the cost of goods sold and 40% of marketing, general, and administrative expenses, and that the remaining costs are fixed. For the following year, assume that Molson-Coors expects pricing, variable costs per barrel, and fixed costs to remain constant, except that new distribution and general office facilities are expected to increase fixed costs by $100 million. Assume that break-even sales are $2,798 million.

1. Margin of safety expressed as dollar sales.. Enter the answer in millions.
2. Margin of safety expressed as a percentage. Enter the answer as percent rounded to one decimal place.

Answer 1

MOS($) = $770 million

MOS (%)= 21.58%

Step-by-step explanation:

Margin of safety (MOS) determines the amount by which expected sales exceeds the break-even point (BEP).

MOS can be calculated as follows:

MOS (units) = Budgeted sales - BEP

MOS (%) = (Budgeted sales - BEP )/Budgeted sales × 100

MOS = $3,568 - $2,798 = $770 million

MOS (%) = (3,568 - 2,798)/3,568 × 100= 21.6%

MOS ($)= $770 million

MOS (%)= 21.58%