Question

Mcmurtry Corporation sells a product for $100 per unit. The product's current sales are 12,100 units...

Mcmurtry Corporation sells a product for $100 per unit. The product's current sales are 12,100 units and its break-even sales are 10,406 units. The margin of safety as a percentage of sales is closest to:

Multiple Choice

  • 14%

  • 16%

  • 86%

  • 84%

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Answer #1
Right answer option a. 14%

Computation of margin of safety as a percentage of sales:
Current sales (12,100 * $100 ) $1,210,000
Break even sales (10,406 * $100) $1,040,600
Margin of Safety ($1,210,000 - $1,040,600) $169,400
Margin of safety = Current sales - Break even sales
Margin of safety as a percentage of sales ($169,400 / $1,210,000) *100 14%
Margin of safety as a percentage of sales = Margin of safety / Current Sales*100
The margin of safety as a percentage of sales is closest to 14%.
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