Answer:
37 %
Explanation:
Margin of safety is the difference between expected profit and the break-even point. It is expressed as a percentage of the sales level. the formula is as below
the margin of safety = budgeted sales - break-even/ budgeted sales x 100
For Zhao Co. ltd break-even point is:
Using the contribution margin formula,
break-even = fixed cost/contribution margin per unit
Fixed cost = $390, 600
Contribution margin per unit = Selling price - variable costs
=$181- $119= $62
Breakeven in units = $390,000 / $62 =$6300 units
Break even in dollars = $6300 x $181= 1, 140,300
Expected sales = 10,000 units
sales in dollars = 10,000 x $181= 1, 810, 000
The margin of safety
= 1 810,000- 1140,000/ 1810,000 x 100
=670,000/1810,000 x 100
=0.370165 x 100
=37.016 %
= 37 %
