Question

Menlo Company distributes a single product. The company's sales and expenses for last month follow:

Answer 1

The company's margin of safety in both dollar and percentage terms is $136,000 and 21.79% respectively.

The margin of safety is a company's sales over and above its break-even point are considered margin of safety.

Sales of a company that exceeds its break-even point generate profit.

The formula for Margin of safety(MoS) in dollars is as follows:

$Margin Of Safety In Dollars = Actual Sales - BEP Sales$

Substituting the provided values into the above calculation yields,

$Margin Of Safety In Dollars = 624,000 - 488,000$

= $136,000

To calculate the Margin of safety percentage we use the following formula:

$Margin Of Safety Percentage = \frac{Margin Of Safety In Dollars}{Actual Sales} * 100$

Substituting the provided values into the above calculation yields,

$Margin Of Safety Percentage = \frac{136,000}{624,000} * 100$                                          

= 21.79%

Hence, The company's margin of safety in both dollar and percentage terms is $136,000 and 21.79% respectively.

Learn more about break-even point:

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