Question

John's Repair Shop has a monthly target operating income of $30,000. Variable expenses are 40​% of​ sales, and monthly fixed expenses are $7,500. Read the requirementsLOADING.... Requirement 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal. Begin by identifying the formula to compute the margin of safety. Target sales in dollars - Breakeven sales in dollars = Margin of safety in dollars ​(Round intermediate calculations up to the nearest whole dollar and your final answer to the nearest whole​ dollar.) The margin of safety is .

Answer 1

$50,000

Step-by-step explanation:

To calculate the margin of safety we need to calculate the break-even sales revenue first after calculating break-even sales revenue we will deduct that from the total sales revenue.

Total Sales Revenue = $62,500

Break-Even Sales Revenue = $12,500

Margin of Safety in Dollars = $50,000

Working

Target Income $30000

Fixed expenses $7500

Contribution margin $37500

If Variable cost 40% of the sale Contribution margin will be 60% of the sale

Total target Sales Revenue [37500 / 60%] = $62500

Fixed expenses $7500

Contribution margin ratio 60%

Break-Even Sale [7500/60%] $12500