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12) use the following information to determine the margin of safety in dollars: unit sales 50,000 units dollar sales $ 500,000 fixed costs $ 204,000 variable costs $ 187,500 a) $88,500. b) $108,500. c) $173,600. d) $326,400. e) $500,000.

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So the option c($173,600) is the correct answer.

[tex]\text { Contribution margin ratio }=\frac{\text { Sales }-\text { Variable costs }}{\text { Sales }} \times 100[/tex]
[tex]\text { Contribution margin ratio }=\frac{\$ 500,000-\$ 187,500}{\$ 500,000} \times 100[/tex]

[tex]\text { Contribution margin ratio }=\frac{\$ 312,500}{\$ 500,000} \times 100[/tex]

[tex]\text { Contribution margin ratio }=62.50 \%[/tex]

[tex]\text { Break }-\text { even sales }=\frac{\text { Fixed cost }}{\text { Contribution margin ratio }}[/tex]

[tex]\text { Break }-\text { even sales }=\frac{\$ 204,000}{62.50 \%}[/tex]

[tex]\text { Break }-\text { even sales }=\frac{\$ 204,000}{0.6250}[/tex]

[tex]\text { Break-even sales }=\$ 326,400[/tex]


Margin of safety in dollars = Actual sales - Break-even sales

Margin of safety in dollars = $500,000 - $326,400

Margin of safety in dollars = $173,600

Therefore the correct option is C

What is Margin of Safety?
Break-even seals are subtracted from the actual or anticipated quantity of sales to determine the margin of safety. Therefore, a company's access amount of sales above the break-even point is its margin of safety.

To learn more about Margin of Safety

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