Cleaning Care Inc. expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $12, and unit variable costs are budgeted at $7.

Cleaning Care's margin of safety ratio (MOS %) is:

Question

Cleaning Care Inc. expects to sell 10,000 mops. Fixed costs (for the year) are expected to be $10,000, unit sales price is expected to be $12, and unit variable costs are budgeted at $7.

Cleaning Care's margin of safety ratio (MOS %) is:

Quizplus · Accepted Answer

Margin of safety ratio (MOS %) is the percentage by which sales exceed the break-even point.

First, let's calculate the break-even point:
Break-even unit sales = Fixed costs / (Unit price - Unit variable cost)
Break-even unit sales = $10,000 / ($12 - $7)
Break-even unit sales = 2,000 units

Now, let's calculate the margin of safety in dollars:
Sales - Break-even sales = Margin of safety
Sales = 10,000 units x $12 = $120,000
Break-even sales = 2,000 units x $12 = $24,000
Margin of safety = $120,000 - $24,000 = $96,000

Finally, let's calculate the margin of safety ratio:
Margin of safety ratio = Margin of safety / Sales
Margin of safety ratio = $96,000 / $120,000
Margin of safety ratio = 0.8 or 80%

Therefore, the correct answer is C, 80%.