Question

Evergreen Corp. has provided the following data: Sales per period................................................. 1,000 units Selling price........................................................ $40 per unit Variable manufacturing cost................................ $12 per unit Selling expenses..........................$5,100 plus 5% of selling price Administrative expenses............. $3,000 plus 20% of selling price The margin of safety percentage is:

Answer 1

The correct answer is 55%.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Fixed cost = Selling expense + Administrative expense = $5,100 + $3,000

= $8,100

Now variable cost = 12 + (40× 5%) + (40 × 20%) = 12 + 2+ 8

= $22

So, we can calculate the margin of safety by using following formula:

Margin of safety = Actual Sales - Breakeven Sales

Where, Breakeven sales = $8,100 ÷ (40 - 22) = 450 units

So,Margin of safety = 1,000 - 450 units = 550 units

So, Margin of safety percentage = 550 units ÷ 1,000 units

= 0.55 or 55%