Question

for cullumber company, actual sales are $840,000, and break-even sales are $655,200.a. compute the margin of safety in dollars.b. compute the margin of safety in ratio

Answer 1

a. Margin of Safety in Dollars:

Margin of Safety is the difference between actual sales and break-even sales. It represents the amount by which actual sales can decline before the company starts incurring losses.

Margin of Safety = Actual Sales - Break-even Sales

Margin of Safety = $840,000 - $655,200

b. Margin of Safety in Ratio:

Margin of Safety Ratio is the ratio of Margin of Safety to Actual Sales. It represents the proportion of actual sales that exceeds the break-even sales.

Margin of Safety Ratio = (Actual Sales - Break-even Sales) / Actual Sales

Margin of Safety Ratio = ($840,000 - $655,200) / $840,000

After calculating the above expressions, we will get the margin of safety in dollars and the margin of safety in ratio for Cullumber Company.

Step-by-step explanation: