Palmer Company Below is an income statement for Palmer Company:
Refer to Palmer Company. What was Palmer's margin of safety?

Question

Palmer Company Below is an income statement for Palmer Company:
 Refer to Palmer Company. What was Palmer's margin of safety?

Quizplus · Accepted Answer

Margin of safety = Total sales - Break-even sales
Break-even sales = Fixed cost ÷ Contribution margin ratio = $1,000,000 ÷ ($3,000,000 - $1,000,000) = $1,000,000 ÷ $2,000,000 = $0.50
Total sales = $3,500,000
Margin of safety = $3,500,000 - ($0.50 × $3,500,000) = $109,091. Therefore, the correct answer is D.

Palmer Company Below Is an Income Statement for Palmer Company