Reference: 08-12
Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units. $$\begin{array} { | c | c | c | }
\hline \text { Sales } & & \$ 600,000 \
\hline \text { Less expenses: } & & \
\hline \text { Variable } & \$ 390,000 & \
\hline \text { Fixed } & 140,000 & 530,000 \
\hline \text { Net income } & & \$ 70,000 \
\hline
\end{array}$$
-The company's margin of safety as a percentage of sales (rounded to the nearest whole percent)is:

Question

Reference: 08-12
Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units. $$\begin{array} { | c | c | c | } 
\hline \text { Sales } & & \$ 600,000 \
\hline \text { Less expenses: } & & \
\hline \text { Variable } & \$ 390,000 & \
\hline \text { Fixed } & 140,000 & 530,000 \
\hline \text { Net income } & & \$ 70,000 \
\hline
\end{array}$$
-The company's margin of safety as a percentage of sales (rounded to the nearest whole percent)is:

Quizplus · Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-Even Sales) / Actual Sales. Break-even sales can be found by dividing total fixed costs by the contribution margin ratio (Contribution Margin / Sales). Here, the contribution margin is Sales - Variable Costs = $600,000 - $390,000 = $210,000. The contribution margin ratio is $210,000 / $600,000 = 0.35. Fixed costs are $140,000, so break-even sales = $140,000 / 0.35 = $400,000. Thus, the margin of safety = ($600,000 - $400,000) / $600,000 = 0.333 or 33% when rounded to the nearest whole percent.

Reference: 08-12 Junsin Corporation's Budget for Next Year Appears Below

Reference: 08-12
Junsin Corporation's Budget for Next Year Appears Below