Ecco Company has total fixed costs of $5,000, sells a product whose contribution margin is $50 and selling price per unit is $125, and has current sales of $15,000. The company's margin of safety ratio is 20%.
Answer the following statement true (T) or false (F)
False
Break-even point in units = Fixed costs ÷ Contribution margin per unit
Break-even point in units = $5,000 ÷ $50 per unit = 100 units
Break-even point in dollars = 100 units × $125 = $12,500
Margin of safety = (Budgeted sales - Break-even sales) ÷ Budgeted sales
Margin of safety = ($15,000 - $12,500) ÷ $15,000 = 16.7%
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