Question

Mcmurtry Corporation sells a product for $280 per unit. The product's current sales are 13,900 units and its break-even sales are 10,425 units. The margin of safety as a percentage of sales is closest to___________.a. 75%b. 33%c. 25%d. 67%

Answer 1

Answer:

Margin of safety as a percentage of sales=0.25=25%

Option C is correct (25%)

Explanation:

Given Data:

Sale price per unit=$280

Current Sales=13,900 units

Break Even sales=10,425 units

Required:

Margin of safety as a percentage of sales=?

Solution:

Margin of safety in Dollars= Total Current Sales- Break even sales

Total Current sales=Sale price per unit*Current Sales

Total Current sales=$280*13,900

Total Current sales=$3,892,000

Break Even Sales=$280*10,425

Break Even Sales=$2,919,000

Margin of safety in Dollars= $3,892,000-$2,919,000

Margin of safety in Dollars= $973,000

Margin of safety as a percentage of sales=$\frac{Margin\ of\ safety\ in\ Dollars}{Total\ current\ Sales}$

Margin of safety as a percentage of sales=$\frac{\ 973,000}{\ 3,892,000}$

Margin of safety as a percentage of sales=0.25=25%

Option C is correct (25%)