Chapter 21, Problem E21.43E

To determine

Concept Introduction:

Contribution margin: Contribution margin is the % of contribution over sales. It is calculated with the help of following formula:

$Contributionmargin=\frac{\left(Salesprice–Variablecostperunit\right)}{Salesprice}$

Breakeven point: Breakeven point is the level of output at which the sales is equal to the total cost and there is no profit or loss. Breakeven point in units is calculated with the help of following formula:

$Breakevenpoint\left(Units\right)=\frac{TotalFixedCost}{\left(Salespriceperunit–Variablecostperunit\right)}$

Margin of Safety: Margin of safety is sales over and above the breakeven level. Margin of safety can be calculated as dollar amount and in units as follows:

$Marginofsafety\left(\$\right)=ActualSales–Breakevensales$

$Marginofsafety\left(\%\right)=\frac{\text{(}ActualSales–Breakevensales)}{ActualSales}$

1. To determine: Margin of Safety in Dollar amount