Question

a. If Canace Company, with a break-even point at $960,000 of sales, has actual sales of $1,200,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales

Answer 1

Answer:

Results are below.

Explanation:

Giving the following information:

Break-even point in sales= $960,000

Actual sales= $1,200,000

To calculate the margin of safety in dollars and as a percentage, we need to use the following formulas:

Margin of safety= (current sales level - break-even point)

Margin of safety= (1,200,000 - 960,000)

Margin of safety= $240,000

Margin of safety ratio= (current sales level - break-even

point)/current sales level

Margin of safety ratio= 240,000 / 1,200,000

Margin of safety ratio= 0.2 = 20%