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If the margin of safety is 21.875 per cent of sales, break-even sales are what share of sales?
A21.875 per cent
B78.125 per cent
C50.000 per cent
D68.125 per cent
Answer & Solution
Correct answer: B. 78.125 per cent
1. Sales split into two parts only, break-even sales and the margin of safety.
2. So break-even sales = 100 per cent less margin of safety.
3. = 100 - 21.875 = 78.125 per cent.
4. On sales of 6,40,000 that is 6,40,000 x 78.125 per cent = 5,00,000.
5. Reading the margin of safety itself as break-even sales is the trap.
_Source: ICAI Cost and Management Accounting Ch14 'Marginal Costing', section 14.10 illustration_
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