Light Me Up Lamps has variable expenses of 40 of sales and m

Light Me Up Lamps has variable expenses of 40% of sales and monthly fixed expenses of $216,000. The monthly target operating income is $24,000. What is the monthly margin of safety in dollars if Light Me Up Lamps achieves its operating income goal? OA. OB. OC. O D. $440,000 $40,000 $400,000 $240,000 ick to select your answer

Solution

Solution:

Variable expenses ratio = 40%

Contribution margin ratio = 60%

Fixed expenses = $216,000

Operating income = $24,000

Current sales = (Fixed expenses + Operating income) / Contribution margin ratio

= ($216,000 + $24,000) / 60% = $400,000

Breakeven sales = Fixed expenses / contribution margin ratio = $216,000 / 60% = $360,000

Margin of safety in dollars = Current sales - Breakeven sales = $400,000 - $360,000 = $40,000

Hence option B is correct.