Question

Gladstone Co. has expected sales of $360,000 for the upcoming month and its monthly break even sales are $342,500. What is the margin of safety as a percent of sales, rounded to the nearest whole percent

Answer 1

Answer:

4.86%

Explanation:

Given that

Expected sales = $360,000

Break-even sales = $342,500

The computation of the margin of safety is shown below:-

Margin of safety (in percent) = (Expected sales - Break-even sales) ÷ Expected sales

= ($360,000 - $342,500) ÷ $360,000

= $17500 ÷ $360,000

= 4.86%

Therefore, for computing the margin of safety we simply deduct break even sales from expected sales and after result we divide with expected sales.