RedTail Manufacturing has the following data: If RedTail has actual monthly sales of $1,500,000 and desires an operating profit of $50,000 per month,what is the margin of safety in sales dollars?
A)$100,000.
B)$266,667.
C)$50,000.
D)$1,130,000.

Question

RedTail Manufacturing has the following data:  If RedTail has actual monthly sales of $1,500,000 and desires an operating profit of $50,000 per month,what is the margin of safety in sales dollars?
A)$100,000. 
B)$266,667. 
C)$50,000. 
D)$1,130,000.

Quizplus · Accepted Answer

Margin of safety is the amount by which actual sales exceed the break-even sales level. It is calculated as:

Margin of safety = Actual Sales - Break-even Sales

To find the break-even sales, we need to first calculate the total cost (fixed cost + variable cost) and then use the following formula:

Break-even Sales = (Total Cost + Target Profit) / Contribution Margin Ratio

Here, the question gives us the target profit ($50,000) and the actual sales ($1,500,000). We need to find the fixed and variable costs to calculate the contribution margin ratio and the break-even sales.

Unfortunately, we don't have any of this data, just a random string of characters. Therefore, we cannot solve this problem.

RedTail Manufacturing Has the Following Data: If RedTail Has