Label Corp. recorded sales of $2,235,245 for the most recent year. The company's breakeven sales point (in dollars) is $1,650,000, and its margin of safety ratio (MOS%) at the current sales level is 27%. What sales (in dollars) would be needed to increase the company's MOS% to 38%?

Question

Quizplus · Accepted Answer

Margin of Safety (MOS%) = (Sales - Breakeven Sales) / Sales
At current sales level MOS% = 27%,
$2,235,245 (sales) - $1,650,000 (breakeven sales) = $585,245 (margin of safety)
27% = $585,245 (margin of safety) / $2,235,245 (sales)
To increase the MOS% to 38%, we can use the same formula,
38% = (Sales - $1,650,000) / Sales
0.38 Sales - $1,650,000 = 0.62 Sales
$585,245 = 0.62 Sales - 0.38 Sales
$585,245 = 0.24 Sales
Sales = $2,438,521
Therefore, the sales needed to increase the company's MOS% to 38% is $2,438,521, which is closest to option B, $2,661,290.