Question

1. The Whitehead Company has sales of $690,000, and the break-even point in sales dollars is $531,300.

   Determine the company's margin of safety as a percent of current sales.
   %

Answer 1

Solution :

The formula for calculating the Margin of safety as a percent of current sales is

Margin of safety = ( Current sales – Break even point in sales ) / Current sales

As per the information given in the question we have

Current sales = $ 690,000 ; Break even point in sales = $ 531,300

Applying the above information in the formula we have

= ( $ 690,000 - $ 531,300 ) / $ 690,000

= $ 158,700 / $ 690,000

= 0.2300

= 23.00 %

Thus the company's margin of safety as a percent of current sales = 23.00 %