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### Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

# Zhao Co. has fixed costs of $354,000. Its single product sells for$175 per unit, and variable costs are $116 per unit. If the company expects sales of 10,000 units, compute its margin of safety (a) in dollars and (b) as a percent of expected sales. (a) The margin of safety in dollars is$677,273.

(b) The margin of safety as a percentage of sales is 38.70%.

See the step by step solution

## Step 1: Definition of Margin of Safety

The margin of safety is when the sales made by the business entity are more than the breakeven point. It is better if the actual sales are higher than the breakeven sales.

## Step 2: (a) Margin of safety in dollars

 Particular Amount $Expected sales 10,000 units @$175 per unit $1,750,000 Less: Break-even sales (1,072,727) Margin of safety$677,273

Working note: