A clothing company sells shirts for $8 per shirt. In order to break even, the company must sell 25,000 shirts. Actual sales total $300,000.
What is margin of safety sales for the company?
A clothing company sells shirts for $8 per shirt. In order to break even, the company must sell 25,000 shirts. Actual sales total $300,000.
What is margin of safety sales for the company?
The margin of safety is calculated as the actual sales minus the breakeven sales. The clothing company's actual sales total $300,000, and the breakeven point is $8 per shirt * 25,000 shirts, which equals $200,000. Therefore, the margin of safety is $300,000 - $200,000 = $100,000.
A. $100,000 is the correct answer. Margin of safety = Actual sales less breakeven sales
What's the reasoning behind the answer?