E7-34A (similar to) Carter\'s Repair Shop has a monthly target operating income

Question

E7-34A (similar to) Carter's Repair Shop has a monthly target operating income of $10,000. Variable expenses are 50% of sales, and monthly fixed expenses are S7.000. Read the requirements. Requirement 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal Begin by identifying the formula to compute the margin of safety. Target sales in dollars Breakeven sales in dollars Margin of safety in dollars Round intermediate calculations up to the nearest whole dollar and your final answer to the nearest whole dollar.) The margin of safety is $

Explanation / Answer

Contribution=Sales-Variable costs

=50%

Target Contribution=Fixed costs+Target income

=(10000+7000)=$17000

Hence total sales required=(17000/0.5)=$34000

At breakeven;Contribution=Fixed costs=$7000

Hence breakeven sales=($7000/0.5)=$14000

Hence Margin of safety=(34000-14000)=$20,000.

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