Question

If Canace Company, with a break-even point at $312,000 of sales, has actual sales of $400,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales?

Answer 1

Answer:Margin of safety expressed in dollars=$88,000

Margin of safety  as a percentage of sales =22%

Explanation:

Margin of Safety is the sales greater the break-even point  that helps  businesses gauge and prevent a loss. A Higher Margin of Safety is preferred as it limits the risk of businesses  making loss

Margin of safety expressed in dollars= Total actual sales - break-even point of sales

$400,000 - $312,000

=$88,000

Margin of safety  as a percentage of sales =Margin of safety/ Actual sales  x 100

$88,000/ $400,000 x 100

0.22 x 100

= 22%