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The margin of safety percentage is 6%
What is the margin of safety percentage?
The relevant range Sales (9,000 units) Variable expenses Contribution margin Fixed expenses Net operating income 270,000 202,500 67,500 63,750 36.
Below is a graph showing how the margin of safety percentage was calculated;
The ratio of the contribution margin is
Sales = Contribution margin
= ($675,00 ÷ $270,000)
= 0.25
In dollars, the current breakeven point is
= Contribution margin ratio Fixed cost
= ($63,750 ÷ 0.25)
= $255,000
The fact that
Safety margin = total sales - Sales at breakeven.
= ($270,000 - $255,000)
= $15,000
The current margin of safety% is
= MOS - Gross sales
= ($15,000 ÷ $270,000)
= 5.56%
= 6%
The margin of safety percentage is 6%.
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There is a 6% margin of safety.
What is the percentage of the margin of safety?
The crucial range Sales (9,000 units) (9,000 units) Variable costs Margin of contribution Fixed costs 270,000 202,500 67,500, 63,750, and 36 were the net operating earnings.
The contribution margin ratio is Contribution margin = Sales
= ($675,00 ÷ $270,000) = 0.25
The current breakeven point in USD is Ratio of contribution margin Fixed price
= ($63,750 ÷ 0.25) = $255,000
Considering that,
Total sales minus sales at breakeven equals safety margin.
= ($270,000 - $255,000) = $15,000.
Currently, the margin of safety is %.
Gross sales equals MOS.
= ($15,000 ÷ $270,000) = 5.56% = 6% (Approx.)
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