Asked by Chamil Bruno on Apr 26, 2024
Verified
The margin of safety in dollars is closest to:
A) $86,100
B) $8,400
C) $24,000
D) $94,500
Margin Of Safety
The difference between actual or projected sales and the break-even point, indicating the degree of risk associated with falling sales.
- Evaluate the margin of safety both in financial terms and as a percentage value.
Verified Answer
GD
Gautam DugarApr 27, 2024
Final Answer :
C
Explanation :
CM ratio = Contribution margin ÷ Sales = $94,500 ÷ $270,000 = 35%
Dollar sales to break even = Fixed expenses ÷ CM ratio = $86,100 ÷ 35% = $246,000
Margin of safety in dollars = Total budgeted (or actual)sales - Break-even sales
= $270,000 − $246,000 = $24,000
Reference: CHO6-Ref13
Golebiewski Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range.
Dollar sales to break even = Fixed expenses ÷ CM ratio = $86,100 ÷ 35% = $246,000
Margin of safety in dollars = Total budgeted (or actual)sales - Break-even sales
= $270,000 − $246,000 = $24,000
Reference: CHO6-Ref13
Golebiewski Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range.
Learning Objectives
- Evaluate the margin of safety both in financial terms and as a percentage value.
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