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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Margin of safety

Junck Company has sales of $550,000, and the break-even point in sales dollars is $385,000. Determine the company's margin of safety as a percent of current sales.

To determine

Margin of Safety: It is a measure that shows the probability of decrease in the sales level before a company faces an operating loss or reaches its break-even point. It is expressed in terms of dollars of sales, unit of sales, and percent of current sales. The formula to calculate the margin of safety as a percent of current sales is as follows:

 MarginofSafety=SalesSalesatBreak-EvenPointSales

To determine: the Company J’s margin of safety as a percent of current sales.

Explanation

Determine the Company J’s margin of safety as a percent of current sales.

Sales =$550,000

Sales at break-even point =$385,000

 MarginofSafety=SalesSalesatBreak-EvenPointSales×100<

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