Robert's Repair Shop has a monthly target profit of $21,000. Variable costs are 40% of​ sales, and monthly fixed costs are $27,000.   Requirements 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal. 2. Express Robert's margin of safety as a percentage of target sales. 3. Why would Robert's management want to know the​ shop's margin of​ safety?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Robert's
Repair Shop has a monthly target profit of
$21,000.
Variable costs are
40%
of​ sales, and monthly fixed costs are
$27,000.
 
Requirements
1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
2. Express
Robert's
margin of safety as a percentage of target sales.
3. Why would
Robert's
management want to know the​ shop's margin of​ safety?
 
Requirement 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
 
Select the labels and enter the amounts to compute
Robert's
Repair​ Shop's monthly margin of safety in dollars.
 
(1)  
-
(2)  
=
Margin of safety in dollars
 
-
 
=
 
Requirement 2. Express
Robert's
margin of safety as a percentage of target sales. ​(Enter your answer as a whole​ percent.)
 
The margin of safety as a percentage of target sales is:
 
%.
Requirement 3. Why would
Robert's
management want to know the​ shop's margin of​ safety?
 
Managers can use margin of safety to assess the
(3) 
 
 
to the company when there is a possibility of
(4) 
 
 
  
Making this assessment helps managers
(5) 
 
 
(1) 
 
 
 
Breakeven sales in dollars
 
Breakeven sales in units
 
Contribution margin
 
Operating income
 
Target sales in dollars
 
Target sales in units
(2) 
 
 
 
Breakeven sales in dollars
 
Breakeven sales in units
 
Contribution margin
 
Operating income
 
Target sales in dollars
 
Target sales in units
(3) 
 
 benefits
 
 disadvantages
 
 risk
(4) 
 
 a change in target sales.
 
 a large decrease in sales.
 
 higher than expected operating income.
(5) 
 
 accurately calculate a product's contribution margin.
 
 choose a realistic target profit.
 
 make informed decisions.
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