In the current year, Becker Sofa Company expected to sell 12,000 leather sofas. Fixed costs for the year were expected to be $8,400,000; unit sales price was budgeted at $4,600; and unit variable costs were expected to be $2,200.
Becker Sofa Company's margin of safety ratio (MOS %) is (rounded to two decimal places):

Question

Quizplus · Accepted Answer

The margin of safety ratio (MOS %) is calculated as (Actual Sales - Break-Even Sales) / Actual Sales. First, we need to find the break-even point in units, which is Fixed Costs / (Sales Price per Unit - Variable Cost per Unit) = $8,400,000 / ($4,600 - $2,200) = $8,400,000 / $2,400 = 3,500 units. Then, calculate the actual sales in units, which are expected to be 12,000 units. The sales in dollars at the expected level are 12,000 units * $4,600 = $55,200,000. The break-even sales in dollars are 3,500 units * $4,600 = $16,100,000. Therefore, MOS % = (($55,200,000 - $16,100,000) / $55,200,000) * 100 = (39,100,000 / 55,200,000) * 100 ≈ 70.83%.

In the Current Year, Becker Sofa Company Expected to Sell