Margin Of Safety Explanation

permissiveness of asylum (MOS) is the excess of budgeted or literal gross revenue over the break even volume of gross revenue. It states the amount by which sales drop drop before losses multitude to be incurred. The higher the beach of natural rubber, the lower the risk of exposure of not rupture even. The formula or comparability for the computing of  beach of safety is as follows: [Margin of sentry duty = controlling budgeted or veridical sales ? break open even sales] The  rim of safety can also be expressed in ploughshare form. This percentage is obtained by dividing the margin of safety in dollar equipment casualty by total sales. Following equation is used for this purpose. [Margin of Safety = Margin of safety in dollars / nub budgeted or actual sales] Example: Sales(400 units @ $250)| $ atomic number 6,000| Break even sales| $87,500| Calculate margin of safety| deliberation:| Sales(400units @$250)| $100,000| Break even sal es| $  87,500|  | ---------| Margin of safety in dollars| $ 12,500|  | =======| Margin of safety as a percentage of sales:12,500 / 100,000= 12.5%| It means that at the live train of sales and with the companys current prices and cost structure, a reduction in sales of $12,500, or 12.5%, would result in just breaking even.

In a single product firm, the margin of safety can also be expressed in scathe of the number of units sell by dividing the margin of safety in dollars by the interchange price per unit. In this case, the margin of safety is 50 units ($12,500 ÷ $ 250 units = 50 units). Review Problem: Voltar company manufactures and sells a telephone answering machine. The companys contribution margin income stat! ement for the almost recent division is given below: Description| Total| Per unit| percent of Sales| Sales (20,000 units)| $ 1,200,000| $60| 100%| Less variable star expenses| 900,000| $45| ?%|  | ---------| --------| --------| Contribution margin| 300,000| $15| ?%| Less unflinching expenses| 240,000| ======| =====|  | ---------|  |  | Net...If you want to get a full-of-the-moon essay, order it on our website: OrderEssay.net

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