Question

Mike's Bikes has sales of $50,000, with a $28,000 break-even point. What is his margin of safety percentage?

a) 44%
b) 56%
c) 79%
d) None of the above

Answer 1

The margin of safety percentage for Mike's Bikes is calculated by subtracting the break-even point from the actual sales, and then dividing by the actual sales. In this case, the margin of safety is 44%, making the answer a) 44%.

Step-by-step explanation:

The student is questioning how to calculate the margin of safety percentage, which is a financial metric used in cost accounting. The margin of safety percentage is defined as the difference between a company's actual sales and its break-even point, divided by the actual sales, all expressed as a percentage. The formula to calculate the margin of safety percentage is:

Margin of Safety Percentage = (Actual Sales - Break-Even Sales) / Actual Sales × 100%

In this scenario:

• Actual Sales are $50,000.
• Break-Even Sales are $28,000.

Applying the formula:

Margin of Safety Percentage = ($50,000 - $28,000) / $50,000 × 100%

Margin of Safety Percentage = $22,000 / $50,000 × 100%

Margin of Safety Percentage = 44%

The correct answer is a) 44%.