Question

In: Accounting

Suppose Zume's sales price is 19, variable cost per unit is 8, and fixed cost is...

Suppose Zume's sales price is 19, variable cost per unit is 8, and fixed cost is 416. Zume sells 1500 pizzas. What is Zume’s Margin of Safety in sales dollars? (HINT: Use Contribution Margin Ratio). (Round ONLY you final answer to 2 digits...keep at least 3 digits on CM ratio during calculations )

Solutions

Expert Solution

Calculation of Margin of safety in dollars:
Contribution per unit= selling price- variable cost
                             =19-8= $11
Contribution margin ratio= Contribution/selling price*100
                                   = 11/19*100= 57.895%
Break even point in dollars= Fixed cost/ contribution margin ratio
                                     =416/0.57895= $718.54
margin of safety in dollars= Total sales- break even sales
                                     =(1500*19)-718.54
                                     =28500-718.54= $27781.46
Margin of safety in dollar= $27781.46

ekkarill92 answered 2 years ago
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