Multiple Choice
Which of the following formulas correctly calculates revenue per unit sold?
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4. Merchandising Operations
Net Sales
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Ralph Corporation has actual sales of $500,000 and break-even sales of $400,000. What is Ralph Corporation’s margin of safety in percentage?
A
20%
B
25%
C
10%
D
80%
Verified step by step guidance1
Understand the concept of Margin of Safety: It represents the percentage by which actual sales exceed break-even sales. It is a measure of risk, showing how much sales can drop before the company reaches its break-even point.
Use the formula for Margin of Safety in percentage: \( \text{Margin of Safety} = \frac{\text{Actual Sales} - \text{Break-even Sales}}{\text{Actual Sales}} \times 100 \).
Substitute the given values into the formula: \( \text{Actual Sales} = 500,000 \) and \( \text{Break-even Sales} = 400,000 \).
Calculate the numerator: \( \text{Actual Sales} - \text{Break-even Sales} = 500,000 - 400,000 \).
Divide the result by \( \text{Actual Sales} \) and multiply by 100 to express the margin of safety as a percentage.
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