2) Define the term “margin of safety.” If Revere Company expects to sell 1,250 units of...
2) Define the term “margin of safety.” If Revere Company expects to sell 1,250 units of its product at $12 per unit, and break-even sales for the product are $13,200, what is the margin of safety ratio?
Homework Answers
Margin of safety:
Margin of safety refers to "the difference between actual sales and break-even sales".
It indicates the sum by which an organization's sales could diminish before the organization will have no profit.
Margin of safety ratio:
Margin of safety ratio = [(Current sales level - break even point) ÷ Current sales level] x 100
= [($15,000 - $13,200) ÷ $15,000] x 100
= [$1,800 ÷ $15,000] x 100
= 0.12 x 100
= 12%
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