Asked by Gargi Patil on May 02, 2024
Verified
The margin of safety percentage is closest to:
A) 2%
B) 24%
C) 75%
D) 6%
Margin Of Safety Percentage
A financial metric that indicates the degree to which a business's sales can decline before it reaches the break-even point.
- Calculate the safety margin expressed in monetary value and in percentage terms.
Verified Answer
ZK
Zybrea KnightMay 06, 2024
Final Answer :
D
Explanation :
CM ratio = Contribution margin ÷ Sales = $37,500 ÷ $150,000 = 25%
Dollar sales to break even = Fixed expenses ÷ CM ratio = $35,250 ÷ 25% = $141,000
Margin of safety in dollars = Total budgeted (or actual)sales - Break-even sales
= $150,000 − $141,000 = $9,000
Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual)sales
= $9,000 ÷ $150,000 = 6%
Reference: CHO6-Ref14
Shambo 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 = $35,250 ÷ 25% = $141,000
Margin of safety in dollars = Total budgeted (or actual)sales - Break-even sales
= $150,000 − $141,000 = $9,000
Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual)sales
= $9,000 ÷ $150,000 = 6%
Reference: CHO6-Ref14
Shambo Corporation has provided the following contribution format income statement.All questions concern situations that are within the relevant range.
Learning Objectives
- Calculate the safety margin expressed in monetary value and in percentage terms.
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