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13 February, 06:10

Lake sales had $2,500,000 in sales last month. the contribution margin ratio was 35% and operating profits were $175,000. what is lake's margin of safety in sales dollars?

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  1. 13 February, 10:10
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    Lake sales had $2,500,000 in sales last month

    the contribution margin ratio was 35% = 35/100 = 0.35

    operating profits were $175,000

    Fixed costs = $2,500,000 * 0.35 - 175,000

    =$875,000 - $175,000

    = $700,000

    $700,000/.35 = $2,000,000

    Margin of safety = $2,500,000 - $2,000,000 = $500,000
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