Multiple Choice
Which of the following is likely to have a positive effect on your company's profit with respect to net sales?
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4. Merchandising Operations
Net Sales
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Given the following information for Ralph Corporation: Sales = $500,000, Break-even Sales = $400,000. What is Ralph Corporation’s margin of safety in dollars?
A
$100,000
B
$400,000
C
$500,000
D
$900,000
Verified step by step guidance1
Understand the concept of margin of safety: It represents the amount by which sales exceed the break-even sales, indicating the cushion available before the company incurs a loss.
Identify the formula for margin of safety in dollars: Margin of Safety = Sales - Break-even Sales.
Substitute the given values into the formula: Sales = $500,000 and Break-even Sales = $400,000.
Perform the subtraction operation: Calculate $500,000 - $400,000 to determine the margin of safety.
Interpret the result: The margin of safety in dollars represents the financial buffer Ralph Corporation has above its break-even point.
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