Palomo Corporation sells a product for $170 per unit. The product's current sales are 35,200 units and its break-even sales are 25,344 units. The margin of safety as a percentage of sales is closest to:
A)72%
B)39%
C)28%
D)61%

Question

Quizplus · Accepted Answer

Margin of safety can be calculated by subtracting the break-even sales from actual sales, and then dividing the result by actual sales:

Margin of safety as % = ((Actual Sales - Break-even Sales) / Actual Sales) x 100%

In this case, the actual sales are 35,200 units and the break-even sales are 25,344 units. Therefore, the margin of safety as a percentage of sales is:

((35,200 - 25,344) / 35,200) x 100% = 28.03% ≈ 28%

Therefore, the closest answer is C) 28%.

Palomo Corporation Sells a Product for $170 Per Unit