Question

If the inn plans on renting an average of 50 rooms per day (assuming a 30-day month), what is (1) the monthly margin of safety in dollars and (2) the margin of safety ratio? (Round ratio to 0 decimal places, e.g. 10%.)

Answer 1

1. $ 36,400

2. 43.33%

Step-by-step explanation:

1. Calculation for the monthly margin of safety in dollars

First step is to calculate the Current sales

Current sales = 50 x 30 x $56

Current sales=84,000

Now let calculate the monthly margin of safety in dollars

Margin of safety=84,000 - $47,600

Margin of safety= $36,400

Therefore the monthly margin of safety in dollars is $36,400

2) Calculation for the margin of safety ratio

Margin of safety ratio=36,400 / 84,000

Margin of safety ratio= 43.33%

Therefore the Margin of safety ratio is 43.33%