Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2.5…

Grissom Company estimates that variable costs will be 60% of sales, and fixed costs will total $800,000.The selling price of the product is $4.

Instructions

(a) Prepare a CVP graph, assuming maximum sales of $3,200,000. (Note: Use $400,000 increments for sales and costs and 100,000 increments for units.)

(b) Compute the break-even point in (1) units and (2) dollars.

(c) Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2.5 million.