Question

During the current year, OutlyTech Corp. expected to sell 22,500 telephone switches. Fixed costs for the year were expected to be $12,142,500, the unit sales price was budgeted at $3,250, and unit variable costs were budgeted at $1,400. OutlyTech's margin of safety ratio (MOS %) is

Answer 1

Answer:

70.83%

Explanation:

The computation of the margin of safety percentage is as follows:

Margin of safety percenatge is

= Margin of safety ÷ Total sales unit

where,

margin of safety units

= Total sales units - break even sales unit

The break even sales unit

= Fixed cost ÷ contribution margin per unit

= $12,142,500 ÷ ($3,250 - $1,400)

= 6,564 units

Now the margin of safety unit is

= 22,500 units- 6,564 units

= 15,936 units

So, the margin of safety percentage is

= 15,936 units ÷ 22,500 units

= 70.83%