Question 1

Section A

AeroFly operates a regional airline. The company has fixed costs of $2,000,000 per month. The average Contribution to Sales (C/S) ratio across all flights is 40%. AeroFly's budgeted monthly revenue is $6,250,000.

Calculate the Margin of Safety as a percentage of budgeted revenue. (Enter the percentage number only, e.g., 20).

Accepted Answer

Step 1: Calculate Breakeven Revenue = Fixed Costs / C/S ratio. Step 2: Calculate Margin of Safety = (Budgeted Revenue - Breakeven Revenue) / Budgeted Revenue * 100.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Dividing the Margin of Safety by the Breakeven Revenue instead of the Budgeted Revenue.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 1

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