Question

Calculate margin of safety from the following
Sales 12,00,000
Contributions 6,00,000
Fixed cost 4,00,000

Answer 1

Explanation:

Solution :

Margin of safety = Profit / P/V Ratio

P/V Ratio = Contribution / Sales × 100

P/V Ratio = 6,00,000 / 12,00,000 × 100

P/V Ratio = 50%

Profit = Contribution - Fixed Cost

Profit = 6,00,000 - 4,00,000

Profit = 2,00,000

Margin of safety = Profit / P/V Ratio

= 2,00,000 / 50%

= 4,00,000

Margin of safety = 4,00,000

Therefore, Margin of safety = 4,00,000

Answer 2

Answer:

Margin of safety = 4,00,000

Explanation:

Solution :

★ Margin of Safety =

$\sf{\dfrac{Profit}{Profit \: Volume \: Ratio}}$

★ P/V Ratio =

$\sf{\longrightarrow{\dfrac{Contribution}{Sales} \: \times \: 100}}$

$\sf{\longrightarrow{\dfrac{6,00,000 }{12,00,000} \: \times \: 100}}$

P/V Ratio = 50%

★ Profit =

Profit = (Sales × Profit Volume Ratio) - Fixed Cost

OR

Profit = Contribution - Fixed Cost

Profit = 6,00,000 - 4,00,000

Profit = 2,00,000

★ Margin of safety =

$\sf{\longrightarrow{\dfrac{Profit}{Profit \: Volume \: Ratio}}}$

$\longrightarrow{\sf{\dfrac{2,00,000}{50\%}}}$

Margin of safety = 4,00,000

∴ Margin of safety = 4,00,000