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Breakeven is 2,400 units and actual sales are 8,000 units. What is the margin of safety expressed as a percentage?
A70%
B30%
C44%
D56%
Answer & Solution
Correct answer: A. 70%
1. The margin of safety in units is 8,000 minus 2,400, which is 5,600 units.
2. As a percentage it is that cushion divided by actual sales.
3. 5,600 divided by 8,000 gives 70%.
4. The same 70% appears in money terms, since $280,000 divided by $400,000 is also 70%.
5. 30% is the breakeven volume as a share of actual sales, which is the complement rather than the cushion.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 5.5 Margin of Safety_
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