Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units.
$\begin{array}{|l|r|r|}
\hline \text { Sales } & & \$ 600,000 \
\hline \text { Less: expenses } & & \
\hline \text { Variable } & \$ 390,000 & \
\hline \text { Fixed } & \$ 140,000& \$ 530,000 \
\hline \text { Operating income } & & \$ 70,000 \
\hline
\end{array}$

-What is the company's margin of safety as a percentage of sales,rounded to the nearest whole percent?

Question

Junsin Corporation's budget for next year appears below. The budget assumes the company will sell 30,000 units.
$\begin{array}{|l|r|r|}
\hline \text { Sales } & & \$ 600,000 \
\hline \text { Less: expenses } & & \
\hline \text { Variable } & \$ 390,000 & \
\hline \text { Fixed } &  \$ 140,000& \$ 530,000 \
\hline \text { Operating income } & & \$ 70,000 \
\hline
\end{array}$

-What is the company's margin of safety as a percentage of sales,rounded to the nearest whole percent?

Quizplus · Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-even Sales) / Actual Sales. Break-even sales = Fixed Costs / Contribution Margin Ratio. Contribution Margin Ratio = (Sales - Variable Costs) / Sales = (600,000 - 390,000) / 600,000 = 35%. Break-even sales = 140,000 / 0.35 = 400,000. Margin of safety = (600,000 - 400,000) / 600,000 = 33%.

Junsin Corporation's Budget for Next Year Appears Below -What Is the Company's Margin of Safety as a Percentage