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    Margin of Safety Problems

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    Strong Wood Company is a distributor of patio furniture. Data concerning the next month's budget appear below.
    Selling price $290.00
    Variable expense $174.00
    Fixed expense $158,000.00
    Unit sales 1,500 units per month

    a. What is the company's margin of safety? (Please show all work so I am able to learn the formulas)
    b. What is the company's margin of safety as a percentage of sales? (Please show all work so I am able to learn the formulas)

    I am very interested in learning how to do this, so any help with formulas is great, and please show all computations in your work.

    © BrainMass Inc. brainmass.com October 2, 2022, 11:49 am ad1c9bdddf
    https://brainmass.com/business/accounting/margin-of-safety-problems-518054

    SOLUTION This solution is FREE courtesy of BrainMass!

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    Solution a):

    1500 x 290 = 435000
    1500 x 174 = 261000
    1500 x 158 = 237000
    261000 + 237000 = 498000
    498000 expenses / 290 = 1717.24

    You can check the breakeven by reversing it = 1717 units x 290 selling price = 497930 (498000 is rounded)
    Sales = 435000 - breakeven sales of 497930 = 62930 margin of safety

    The margin of safety is 62,930.

    Solution b):

    Margin of safety/projected sales
    =62930/435000
    = 14.47%

    The company's margin of safety, as a percentage of sales, is 14.47%.

    *Here is a reference for margin of safety calculations, to show you additional examples:
    http://accounting4management.com/margin_of_safety.htm

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com October 2, 2022, 11:49 am ad1c9bdddf>
    https://brainmass.com/business/accounting/margin-of-safety-problems-518054

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