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%
