Dexter Corp.has fixed costs of $500,000 and a contribution margin ratio of 25%.Currently,margin of safety is $1,000,000.What are Dexter's current sales?
A)$1,000,000
B)$2,000,000
C)$3,000,000
D)$4,000,000

Question

Quizplus · Accepted Answer

Margin of safety = Actual sales - Break even sales
$1,000,000 = actual sales - (fixed costs/contribution margin ratio)
$1,000,000 = actual sales - ($500,000/0.25)
$1,000,000 = actual sales - $2,000,000
Actual sales = $3,000,000