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Week 5, LO 7 Demo

# Week 5, LO 7 Demo - Problem Part 1 Margin of safety = Total...

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Week 5 Week 5 Skill Building Demonstration Problem 7 Compute the margin of safety and explain its significance . Learning Objective 7 Margin of safety = Total Budgeted (or actual) sales – Break-even sales Margin of safety percentage = Margin of safety in dollars Total budgeted (or actual) sales dollars Margin of safety is another tool used by managers to determine the risk that either the company or department faces in experiencing an operating loss or breaking-even. The higher the margin of safety the company has the lower the risk of experiencing an operating loss or breaking-even. Definitions Conrad Cookware has total budgeted sales for the upcoming year of \$50,000. The amount to break-even in dollars for the company is \$35,000. Required: Determine the margin of safety and the margin of safety percentage.

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Unformatted text preview: Problem Part 1 Margin of safety = Total Budgeted (or actual) sales – Break-even sales Margin of safety = \$50,000 - \$35,000 Margin of safety = \$15,000 Margin of safety percentage = Margin of safety in dollars/ Total budgeted (or actual) sales dollars Margin of safety percentage = \$15,000/\$50,000 Margin of safety percentage = 30% Solution Conrad Cookware has two factories. One is located in Peoria, Illinois and the other in Rockford, Illinois. Both factories are operating at a profit at the moment but the company wants to determine which factory is more vulnerable to the current economic downturn. The data for both factories are: Problem Part 2 Solution...
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