Question

In: Accounting

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

Rachel Company has sales of $400,000, and the break-even point in sales dollars is $300,000. Determine the company’s margin of safety as a percent of current sales.

Solutions

Expert Solution

For Rachel Company, we can use the following formula to calculate the margin of safety as a percentage of current sales:

Margin of Safety = (Actual Sales - Break-Even Sales) / Actual Sales

Given: Actual Sales: $400,000 Break-Even Sales: $300,000

Margin of Safety = ($400,000 - $300,000) / $400,000 = $100,000 / $400,000 = 0.25

To express the margin of safety as a percentage, we multiply it by 100:

Margin of Safety (as a percentage) = 0.25 * 100 = 25%

 

Therefore, Rachel Company's margin of safety as a percentage of current sales is 25%.

balaji rao answered 1 year ago
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