The following pertains to Upton Co. for the year ending December 31, 2016: Budgeted Sales $...
The following pertains to Upton Co. for the year ending December
31, 2016:
| Budgeted Sales | $ | 1,050,000 |
| Break-even Sales | 710,000 | |
| Budgeted Contribution Margin | 610,000 | |
| Cashflow Break-even | 205,000 | |
Upton's margin of safety is: (CPA adapted)
A. $505,000.
B. $845,000.
C. $440,000.
D. $340,000.
Homework Answers
A Margin of safety sales is the sales which is over and above the Break even sales.
At break even sales the business neither earns any profit nor suffers any loss.
Any sales above the break even sales will contribute to the profits of the company which is known as Margin of Safety.
In short, Margin of safety is the difference between actual/budgeted sales and the level of breakeven sales.
It is calculated by subtracting the break-even sales from the actual or budgeted sales.
Hence Upton Company's Margin of Safety is calculated as follows.
MoS = Budgeted Sales - Break even Sales
= $ 1,050,000 - $ 710,000
= $ 340,000. (Option D)
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