Question

EE 21-7 Jonick Company has sales of $740,000, and the break-even point in sales dollars is $547,600. Determine the company’s margin of safety as a percent of current sales.

Answer 1

Answer: Jonick Company's margin of safety as a percentage of current sales is 26.05%.

Step-by-step explanation: To find the margin of safety as a percentage of current sales, we need to first calculate the margin of safety, which is the amount of sales above the break-even point:

Margin of safety = Actual sales - Break-even point

We know that actual sales are $740,000 and the break-even point is $547,600, so:

Margin of safety = $740,000 - $547,600

Margin of safety = $192,400

Now that we know the margin of safety, we can calculate it as a percentage of current sales:

Margin of safety % = (Margin of safety / Actual sales) x 100

Plugging in the numbers, we get:

Margin of safety % = ($192,400 / $740,000) x 100

Margin of safety % = 26.05%

Therefore, Jonick Company's margin of safety as a percentage of current sales is 26.05%. This means that sales can drop by 26.05% before the company starts to incur losses.