Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

The margin of safety is the excess of:

Gross profit over net sales

Break-even sales over actual (or budgeted) sales

Net sales over gross profit

Actual (or budgeted) sales over break-even sales

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Verified step by step guidance

Understand the concept of margin of safety: It represents the difference between actual (or budgeted) sales and break-even sales. It measures how much sales can drop before the business reaches its break-even point.

Identify the formula for margin of safety: Margin of Safety = Actual (or Budgeted) Sales - Break-even Sales.

Determine the actual (or budgeted) sales: This is the total revenue expected or achieved during a specific period.

Calculate the break-even sales: Break-even sales are the sales level at which total revenue equals total costs, resulting in zero profit. Use the formula: Break-even Sales = Fixed Costs / Contribution Margin per Unit.

Subtract the break-even sales from the actual (or budgeted) sales to find the margin of safety. Ensure the values are correctly substituted into the formula to complete the calculation.