Post: Describe the concept of margin of safety. Why is margin of safety a useful tool...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Post: Describe the concept of margin of safety. Why is margin of safety a useful tool to calculate? How is it computed? How do we interpret the margin of safety ratio? When analyzing margin of safety, do we want a larger or smaller amount? Reply: Link this topic back to Peppy Pet. Explain to Josh the margin of safety computations from your CVP analysis. What does the margin of safety mean for him and his operations? Exhibit 1: Peppy Pet Information Contribution Margin Calculations Unit Information for Launch-Its Unit Contribution Margin Contribution Margin Ratio $5.00 0.56 Sales price per unit 9.00 Variable costs per unit Units Sold in June 4.00 400 Breakeven Point Analysis Company Information Total fixed costs per month Breakeven Point in Units Breakeven Point in Revenue 1,500.00 300 Target profit per month 8,000.00 $2,679 Peppy Pet CVP Income Statement Target Net Income Analysis Required Sales in Units Required Sales in Dollars 1900 $16,964 For the month ending June 30 Total Sales Revenue 3,600.00 1,600.00 Margin of Safety Analysis Less. Variable Costs Contribution Margin 2,000.00 Margin of Safety in Dollars Margin of Safety Ratio (%) 1.500.00 $921 Less: Fixed Costs Operating Income 500 00 26% Post: Describe the concept of margin of safety. Why is margin of safety a useful tool to calculate? How is it computed? How do we interpret the margin of safety ratio? When analyzing margin of safety, do we want a larger or smaller amount? Reply: Link this topic back to Peppy Pet. Explain to Josh the margin of safety computations from your CVP analysis. What does the margin of safety mean for him and his operations? Exhibit 1: Peppy Pet Information Contribution Margin Calculations Unit Information for Launch-Its Unit Contribution Margin Contribution Margin Ratio $5.00 0.56 Sales price per unit 9.00 Variable costs per unit Units Sold in June 4.00 400 Breakeven Point Analysis Company Information Total fixed costs per month Breakeven Point in Units Breakeven Point in Revenue 1,500.00 300 Target profit per month 8,000.00 $2,679 Peppy Pet CVP Income Statement Target Net Income Analysis Required Sales in Units Required Sales in Dollars 1900 $16,964 For the month ending June 30 Total Sales Revenue 3,600.00 1,600.00 Margin of Safety Analysis Less. Variable Costs Contribution Margin 2,000.00 Margin of Safety in Dollars Margin of Safety Ratio (%) 1.500.00 $921 Less: Fixed Costs Operating Income 500 00 26%
Expert Answer:
Answer rating: 100% (QA)
Concept of Margin of Safety Margin of Safety is the sales point immediately after breakeven point which ensures profits to the entity From Breakeven A... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
What does the going concern assumption mean for a business?
-
Describe the concept of functional dependency.
-
Describe the concept of the product life cycle. Give an example of a current product that illustrates each of its four stages.
-
Investment Portfolio and Risk diversification. Analyze the situations that arise in each of the problems and calculate the value or values ?? required for each of these. Problem 2: List and discuss...
-
Consider the following data for 20X1: Physical Units Started in 20X1 ........... 70,000 Completed in 20X1 ........ 115,000 Ending inventory , work in process .... 35,000 Beginning inventory, work in...
-
What is meant by supply management?
-
What are the workflow sequence steps in System Development Phase?
-
Suppose the following financial data were reported by 3M Company for 2013 and 2014 (dollars in millions). Instructions (a) Calculate the current ratio and working capital for 3M for 2013 and 2014....
-
JAVA: The Swedish Chef is a puppet character from the Muppet Show. He spoke in his own language. The language is a combination of English, mock-Swedish and nonsense. Your task is to create an English...
-
Mesa Inc has agreed to acquire 40% ownership stake in Velacro Mining for $225 million to help finance the development of new mining operations. The mines are expected to have an economically useful...
-
Write a program that will convert degrees fahrenheit to degrees celsius.
-
The chapter discussed five challenges to implementing an environmental management accounting (EMA) system within an organization. From your viewpoint, which of these challenges seems to be the...
-
Find a recent annual report for a publicly held company in which you are interested. Summarize what sustainability information is provided in that annual report. Based on the sustainability...
-
Assume a company has a current ratio of 2.0. List two examples of transactions that could cause the current ratio to increase. Also list two examples of transactions that could cause the current...
-
Either individually or in groups, come up with ideas from large companies that are seemingly intrapreneurial. Discuss how each company is innovating beyond its core business.
-
SeaWorld amusement parks are located in Florida, Texas, and California. What specific factors might have contributed to those choices?
-
Consider a Fully-Meshed L2 WAN with 8 sites: A. How many IP addresses from how many IP subnets are required to do Multi-Access Addressing in a 8-site Fully-Meshed L2 WAN? Explain your answer. B....
-
What are technical skills At what level are they most important and why?
-
Explain the nature of intuition in the decision-making process.
-
Examine the trust factors and how Casey handled his team. He has a problem with four trust factors. Which are they (number them 1, 2, 3 and 4). For each explain what Casey did wrong and what he...
-
Should employees be permitted to have access to their own personnel records? Explain. How do you feel about third-party access?
-
What steps are needed to show that entrepreneurial finance is beneficial to the economy at large?
-
What are the main challenges that entrepreneurs and investors face at the four steps of the funding cycle, as described in the FIRE framework?
-
Entrepreneurship involves resource gathering, uncertainty, and experimentation. How does this affect the investors?
Study smarter with the SolutionInn App