A company’s sales figure is £250,000 and its margin of safety ratio is 40%. Assuming that...
A company’s sales figure is £250,000 and its margin of safety ratio is 40%. Assuming that the fixed costs, the variable
cost per unit and the selling price per unit do not change, the company’s margin of safety for sales of £325,000 will
be (2 marks):
| a. |
£175,000 |
|
| b. |
£70,000 |
|
| c. |
£150,000 |
|
| d. |
£100,000 |
Homework Answers
Answer : Option - A, £175,000
Explanation :
Margin of safety = (Actual sales - Breakeven sales) / Actual sales
40% = (£250,000 - Breakeven sales) / £250,000
40% x £250,000 = £250,000 - Breakeven sales
£100,000 = £250,000 - Breakeven sales
Breakeven sales = £250,000 - £100,000
Breakeven sales = £150,000
Now, Sales is £325,000
Margin of safety sales = Actual sales - Breakeven sales
= £325,000 - £150,000
= £175,000
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