A Company with a Break-Even Point at $900,000 in Sales

question 117

Essay

A company with a break-even point at $900,000 in sales revenue had fixed costs of $225,000. When actual sales were $1,000,000, variable costs were $750,000. Determine
(a) the margin of safety expressed in dollars,
(b) the margin of safety expressed as a percentage of sales,
(c) the contribution margin ratio, and
(d) the operating income.

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Definitions:

Real Interest Rate

The real interest rate after accounting for inflation, indicative of the actual borrowing cost and the true profit for investors.

Rational Investor

An individual or entity that makes investment decisions based on logical analysis and reason, rather than on emotions or impulses.

U.S. Net Capital Outflow

The difference between the amount of money flowing out of the United States for foreign investments and the amount of foreign capital entering the U.S. for investments.

Factory Overseas

A manufacturing facility located in a country different from the company's home country, often to take advantage of lower labor costs and less stringent regulations.