Asked by Jessie Schneider on Jul 17, 2024
Verified
Danny's Lawn Equipment has actual sales of $800000 and a break-even point of $520000. How much is its margin of safety ratio?
A) 35%
B) 46%
C) 54%
D) 65%
Margin of Safety Ratio
A financial ratio that measures the difference between actual sales and break-even sales, used to assess a company's financial risk.
Break-even Point
The point at which total costs and total revenue are equal, meaning there is no net loss or gain, and the business is not making a profit.
Actual Sales
This refers to the actual revenue generated from the sale of products or services, as opposed to projected sales or forecasts.
- Calculate margin of safety and margin of safety ratio.
Verified Answer
PP
Pooja PudasainiJul 24, 2024
Final Answer :
A
Explanation :
The margin of safety ratio is calculated as (Actual Sales - Break-even Sales) / Actual Sales. So, ($800,000 - $520,000) / $800,000 = $280,000 / $800,000 = 0.35 or 35%.
Learning Objectives
- Calculate margin of safety and margin of safety ratio.