a.

X Ltd.
Sales 400,000.00
Less: Variable Cost 320,000.00
Contribution Margin 80,000.00
Divided by: Sales 400,000.00
Contribution Margin Ratio 0.20

Fixed Cost 40,000.00

Divided by: Contribution Margin Ratio 0.20
BEP 200,000.00

Sales 400,000.00
Less: BEP 200,000.00
Margin of Safety 200,000.00
b.
Y Ltd.
Sales 400,000.00
Less: Variable Cost 280,000.00
Contribution Margin 120,000.00
Divided by: Sales 400,000.00
Contribution Margin Ratio 0.30

Fixed Cost 80,000.00

Divided by: Contribution Margin Ratio 0.30
BEP 266,666.67

Sales 400,000.00
Less: BEP 266,666.67
Margin of Safety 133,333.33

c. Both Companies have the same amount of Sales, Expenses, and Net Profit. It is a matter of
allocation and utilization its expenses into either variable or fixed. X Ltd is better in achieving
its BEP and Margin of Safety because it has a lower Breakeven Point (BEP) and has a higher
margin of safety than Y Ltd. The lower the breakeven point, the lower the amount of sales a
company would meet in order to breakeven or to recover its expenses. The higher the margin
of safety would mean that the higher the company sales would decrease before suffering a
loss.