Question

Marshmellow Corporation sells a product for $140 per unit. The product's current sales are 12,500 units and its break-even sales are 11,250 units. The margin of safety as a percentage of sales is closest to: a. 11% b. 89% c. 10% d. 90%

Answer 1

c. 10%

Step-by-step explanation:

Margin of safety is the sales value at which the business is safe from making loss. It measures the profit after the break-even point. The sales over the break-even point is considered as the margin of safety.

Margin of safety = Actual Sales - Break-even point = 12,500 units - 11,250 units = 1250 units

Percentage of margin of safety to sales = Margin of safety / Actual sales

Percentage of margin of safety to sales = 1,250 / 12,500

Percentage of margin of safety to sales = 0.10

Percentage of margin of safety to sales = 10%