Question

Brief Exercise 6-6 For Kosko Company, actual sales are $1,234,000 and break-even sales are $950,180. Compute (a) the margin of safety in dollars and (b) the margin of safety ratio.

Answer 1

Answer:

Margin of safety= $283,820

Margin of safety ratio= 0.23

Explanation:

Giving the following information:

The actual sales are $1,234,000 and break-even sales are $950,180.

To calculate the current margin of safety and margin of safety ratio, we need to use the following formulas:

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

Margin of safety= (1,234,000 - 950,180)= $283,820

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

Margin of safety ratio=  283,820/1,234,000= 0.23

Answer 2

Answer:

MOS ($) = $283,820

MOS ratio = 23%

Explanation:

Margin of safety is the excess of budgeted sales over and above the break-even sales figures. It depicts how much sales can fall short of target before  a business starts making a loss.

The margin of safety is calculate as follows:

MOS = budgeted sales - Break-even point

MOS = 1,234,000 - 950,180

=$283,820

MOS ratio = (Budgeted sales - Break-even point)/budgeted sales × 100

           = (1,234,000 - 950,180)/ 1, 234,000

             = 23%