The Mildmanner Corporation has the following data for 2016: The margin of safety expressed in sales revenue will be

Question

The Mildmanner Corporation has the following data for 2016:  The margin of safety expressed in sales revenue will be

Quizplus · Accepted Answer

Margin of safety is calculated as the difference between actual sales revenue and the break-even point. Since the question does not provide break-even point data, we cannot calculate the margin of safety in dollars. However, we can use the provided data to calculate the margin of safety as a percentage of sales revenue. The contribution margin ratio is calculated as follows:

Contribution margin ratio = (Sales revenue - Variable expenses) / Sales revenue 
= (750,000 - 400,000) / 750,000 
= 0.467

The break-even point can be calculated as follows:

Break-even point = Fixed expenses / Contribution margin ratio 
= 150,000 / 0.467 
= 321,114

Therefore, the margin of safety as a percentage of sales revenue is:

Margin of safety = (Actual sales revenue - Break-even sales revenue) / Actual sales revenue 
= (750,000 - 321,114) / 750,000 
= 57.85%

This means that Mildmanner Corporation's actual sales revenue is almost 58% higher than its break-even sales revenue. Expressing the margin of safety in dollars would require additional data, but we can eliminate choices A, C, and D based on this percentage calculation. The correct answer is B, $37,500, which is the closest option to 57.85% of sales revenue.

The Mildmanner Corporation Has the Following Data for 2016