Harold McWilliams owns and manages a general merchandise store in a rural area of Virginia. Harold sells appliances, clothing, auto parts, and farming equipment, among a wide variety of other types of merchandise. Because of normal seasonal and cyclical fluctuations in the local economy, he knows that his business will also have these fluctuations, and he is planning to use CVP analysis to help him understand how he can expect his profits to change with these fluctuations. Harold has the following information for his most recent year. Cost of goods sold represents the cost paid for the merchandise he sells, while operating costs represent rent, insurance, and salaries, which are entirely fixed. Sales Cost of merchandise sold Contribution margin Operating costs. Operating profit $760,000 433,200 326,800 151,790 $175,010 Required: 1-a. What is Harold's margin of safety (MOS) in dollars? (Do not round intermediate calculations.) 1-b. What is the margin of safety (MOS) ratio? (Input your answer as a percentage rounded to 2 decimal places (i.e., 0.1567 = 15.67%).) 3. What is Harold's margin of safety (in dollars) and operating profit if sales should fall to $645,000? (Do not round intermediate calculations.)
Harold McWilliams owns and manages a general merchandise store in a rural area of Virginia. Harold sells appliances, clothing, auto parts, and farming equipment, among a wide variety of other types of merchandise. Because of normal seasonal and cyclical fluctuations in the local economy, he knows that his business will also have these fluctuations, and he is planning to use CVP analysis to help him understand how he can expect his profits to change with these fluctuations. Harold has the following information for his most recent year. Cost of goods sold represents the cost paid for the merchandise he sells, while operating costs represent rent, insurance, and salaries, which are entirely fixed. Sales Cost of merchandise sold Contribution margin Operating costs. Operating profit $760,000 433,200 326,800 151,790 $175,010 Required: 1-a. What is Harold's margin of safety (MOS) in dollars? (Do not round intermediate calculations.) 1-b. What is the margin of safety (MOS) ratio? (Input your answer as a percentage rounded to 2 decimal places (i.e., 0.1567 = 15.67%).) 3. What is Harold's margin of safety (in dollars) and operating profit if sales should fall to $645,000? (Do not round intermediate calculations.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
1
Transcribed Image Text:Harold McWilliams owns and manages a general merchandise store in a rural area of Virginia. Harold sells appliances, clothing, auto
parts, and farming equipment, among a wide variety of other types of merchandise. Because of normal seasonal and cyclical
fluctuations in the local economy, he knows that his business will also have these fluctuations, and he is planning to use CVP analysis
to help him understand how he can expect his profits to change with these fluctuations. Harold has the following information for his
most recent year. Cost of goods sold represents the cost paid for the merchandise he sells, while operating costs represent rent,
insurance, and salaries, which are entirely fixed.
Sales
Cost of merchandise sold
Contribution margin
Operating costs
Operating profit
$760,000
433,200
326,800
151,790
$175,010
Required:
1-a. What is Harold's margin of safety (MOS) in dollars? (Do not round intermediate calculations.)
1-b. What is the margin of safety (MOS) ratio? (Input your answer as a percentage rounded to 2 decimal places (i.e., 0.1567 =
15.67%).)
3. What is Harold's margin of safety (in dollars) and operating profit if sales should fall to $645,000? (Do not round intermediate
calculations.)
1-a. Margin of safety (MOS)
1-b. MOS ratio
3.
Margin of safety
Operating profit
%
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