Question

A. If Canace Company, with a break-even point at $259,000 of sales, has actual sales of $350,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales?Round the percentage to the nearest whole number.
1. $
2. %

Answer 1

Answer:

Margin of safety in dollars is $91,000

Margin of safety as percentage of sales is 26%

Explanation:

Margin of safety can be defined as the amount of output or sales that a business can make before it reaches its breakeven point.

To calculate margin of safety in dollars

Margin of safety= Sales - Breakeven sales

Margin of safety= 350,000- 259,000

Margin of safety= $91,000

To calculate margin of safety as a percentage of sales, we use the following formula.

Margin of safety = (Sales- Breakeven point) ÷ Sales

Margin of safety = (350,000- 259,000)÷ 350,000

Margin of safety= 0.26= 26%

Answer 2

Answer:

1. Margin of Safety(MOS) expressed in dollars =91,000

2. Margin of Safety(MOS) expressed as percentage = 26% (to the nearest whole number)

Explanation:

The MARGIN OF SAFETY is applied as a measure of the difference between the actual sales and break-even sales.

In other words, to find Margin of Safety, you subtract break-even sales from the actual sales.

MOS is used to determine at which level sales can drop before a business incurs losses. It is a tool by which actual or budgeted sales may be decreased without resulting in any loss.

1. Formula for Margin of Safety(in dollars):

Margin of Safety(in dollars) = Actual/Budgeted Sales ➖ Break-even Sales

Where:

Actual Sales = $350,000

Break-even Sales = $259,000

➡ Margin of Safety(in dollars) = $350,000 ➖ $259,000 = 91,000(ans)

2. Formula for Margin of Safety (expressed as a percentage) = [(Actual/Budgeted Sales ➖ Break-even Sales) ➗ Actual/Budgeted Sales] ✖ 100%

Where:

Actual Sales = $350,000

Break-even Sales = $259,000

➡ Margin of Safety (in percentage) = [($350,000 ➖ $259,000) ➗ $350,000] ✖ 100%

= ($91,000 ➗ $350,000) ✖ 100%

= 0.26 ✖ 100% = 26%(ans).