Calculation of margin of safety in sales dollars:
We are given that Em sales had $2,200,000 in sales last month and the contribution margin ratio was 30% and operating profits were $180,000.
We can calculate fixed cost with the help of following formula:
Fixed Costs =( Sales * contribution margin ratio) - operating profits
= (2200000*30%)-180000
= $ 480,000
Now we can calculate Breakevens Dollar Sales as follows:
Breakevens Dollar Sales = Fixed Cost / Contribution Margin %
= 480,000/30%
= $1,600,000
Finally, we can calculate the margin of safety in sales dollars as follows:
The margin of safety in sales dollars = Actual Sales – Breakevens sales
= 2200000-1600000
=$600,000
Hence, Margin of safety in sales dollars is $600,000
