Question

Waterway Industries reported sales of $2000000 last year (100000 units at $20 each), when the break-even point was 63000 units. Waterway’s margin of safety ratio is

Answer 1

Margin Of Safety Ratio is 37%

Step-by-step explanation:

As we all know that:

Margin Of Safety Ratio = (Actual Sales Units - Breakeven Point) / Actual Sales

Here

Actual Sales is $2,000,000 and selling price is $20, which means that total 100,000 units were sold.

Breakeven Point is 63000 Units

By putting values, we have:

Margin Of Safety Ratio = (100,000 Units - 63,000 Units) / 100,000

Margin Of Safety Ratio = 0.37 which is 37%