Question

In: Accounting

Determine the company’s margin of safety as a percent of current sales.

Liu Inc. has sales of $48,500,000, and the break-even point in sales dollars is $31,040,000. Determine the company’s margin of safety as a percent of current sales

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Expert Solution

Margin of Safety : It is a metric that indicates the likelihood of a drop in sales before a firm incurs an operational loss or hits its breakeven point. It is indicated in terms of dollars, units, and percentage of current sales. The formula for calculating the safety margin as a percentage of current sales

Calculation of Margin of Safety

Margin of safety  = Sales - Sales at break even point / sales

Sales = $48,500,000

Sales at break even point = $31,040,000

Margin of Safety = $48,500,000 -$31,040,000 / $48,500,000 x 100

=$17,460,000 / $48,500,000 x 100

=36%

 

 

 

 

 

Liu Margin of safety as a percent of current sales is 36%

balaji rao answered 2 years ago
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