Vipin Ltd. provides you the following information pertaining to the first quarter ended June 30, 2019: Fixed expenses - Rs 22,500 ; Sales value- Rs 75,000; Profit - Rs 15,000. The margin of safety first quarter ended June 30, 2019 is:
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Given:
Fixed expenses = $22,500
Sales value = $75,000
Profit = $15,000
To find:
The Margin of safety for the first quarter
Solution:
The computation of the margin of safety is as follows
As we know that
The Margin of safety = Profit ÷ Profit volume ratio
where,
Profit is $15,000
And, the profit volume ratio = Contribution ÷ Sales × 100
= ($22,500 + $15,000) ÷ ($75,000) × 100
= 50%
So, the margin of safety is
= $15,000 ÷ 50%
= $30,000
hence, the margin of safety is $30,000
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