For Kosko Company, actual sales are $1,200,000 and break-even sales are $960,000. Compute (a) the margin of safety in dollars and (b) the margin of safety ratio.

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zainsubhani zainsubhani · Answer 1 · 2020-02-24T19:34:38+01:00

Answer:

Part A:

Margin of safety in dollars=$240,000.

Part B:

Margin of safety ratio=20%

Explanation:

Given Data:

Actual sales=$1,200,000

Break-even sales=$960,000

Required:

margin of safety in dollars=?

margin of safety ratio=?

Solution:

Part A:

Formula:

Margin of safety in dollars=Actual sales-Break-even sales

Margin of safety in dollars=$1,200,000-$960,000

Margin of safety in dollars=$240,000.

Part B:

Formula:

Margin of safety ratio=[tex]\frac{Actual\ sales\ - Break-even\ sales}{Actual\ Sales}[/tex]

Margin of safety ratio=[tex]\frac{\$1,200,000-\$960,000}{\$1,200,000} =0.20[/tex]

Margin of safety ratio=20%