Question

Dech-23753 company disclosed the following information for November: Sales-----------------$368,500 Contribution margin---$300,500 Net operating income--$12,500 The company's margin of safety percentage is closest to: (Do not round intermediate calcul Multiple Choice a.22.25% b.12.44% c.17.69% d.6.08%

Answer 1

The company's margin of safety percentage, given the sales and contribution margin, a.22.25%

How to find the margin of safety ?

The margin of safety percentage is calculated using the formula:

`\[ \text{Margin of Safety Percentage} = \left( \frac{\text{Sales} - \text{Break-Even Sales}}{\text{Sales}} \right) * 100\% \]`

To calculate the margin of safety, we first need to find the break-even sales. Break-even sales can be determined from the contribution margin and the net operating income.

Given that we have the net operating income and the contribution margin when the net operating income is $12,500, the fixed costs as follows:

`\[ \text{Fixed Costs} = \text{Contribution Margin} - \text{Net Operating Income} \]\[ \text{Fixed Costs} = \$300,500 - \$12,500 \]\[ \text{Fixed Costs} = \$288,000 \]`

Margin of Safety is:

`\[ \text{Margin of Safety Percentage} = \left( (\$368,500 - \$288,000)/(\$368,500) \right) * 100\% \]`

`\[ \text{Margin of Safety Percentage} = \left( (\$80,500)/(\$368,500) \right) * 100\% \]`

Margin of Safety Percentage = 22.25 %

In conclusion, the margin of safety percentage for Dech-23753 company is closest to 22.25%.