Question

If Revere Company expects to sell 1,250 units of its product at $12 per unit, and break-even sales for the product are $13,200, what is the margin of safety ratio?

Answer 1

Answer:

Margin of safety ratio= 0.12

Explanation:

Giving the following information:

Sales= 1,250 units

Break-even point in sales= $13,200

Selling price= $12

First, we need to determine the current sales in dollars:

Sales in dollars= 1,250*12= $15,000

Now, the margin of safety ratio:

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

Margin of safety ratio= (15,000 - 13,200) / 15,000

Margin of safety ratio= 0.12