Question

For Kosko Company, actual sales are $1,200,000 and break-even sales are $960,000. Compute (a) the margin of safety in dollars and (b) the margin of safety ratio.

Answer 1

Part A:

Margin of safety in dollars=$240,000.

Part B:

Margin of safety ratio=20%

Step-by-step explanation:

Given Data:

Actual sales=$1,200,000

Break-even sales=$960,000

Required:

margin of safety in dollars=?

margin of safety ratio=?

Solution:

Part A:

Formula:

Margin of safety in dollars=Actual sales-Break-even sales

Margin of safety in dollars=$1,200,000-$960,000

Margin of safety in dollars=$240,000.

Part B:

Formula:

Margin of safety ratio=
`(Actual\ sales\ - Break-even\ sales)/(Actual\ Sales)`

Margin of safety ratio=
`(\$1,200,000-\$960,000)/(\$1,200,000) =0.20`

Margin of safety ratio=20%