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1 March, 18:53

Evergreen Corp. has provided the following dа ta: Sales per period ... 1,000 units Selling price ... $40 per unit Variable manufacturing cost ... $12 per unit Selling expenses ... $5,100 plus 5% of selling price Administrative expenses ... $3,000 plus 20% of selling price The margin of safety percentage is:

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  1. 1 March, 20:48
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    The correct answer is 55%.

    Explanation:

    According to the scenario, the computation of the given data are as follows:

    Fixed cost = Selling expense + Administrative expense = $5,100 + $3,000

    = $8,100

    Now variable cost = 12 + (40 * 5%) + (40 * 20%) = 12 + 2 + 8

    = $22

    So, we can calculate the margin of safety by using following formula:

    Margin of safety = Actual Sales - Breakeven Sales

    Where, Breakeven sales = $8,100 : (40 - 22) = 450 units

    So, Margin of safety = 1,000 - 450 units = 550 units

    So, Margin of safety percentage = 550 units : 1,000 units

    = 0.55 or 55%
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