NSU EMB 501 Accounting

1. Chapter
22-1

2. Chapter
22-2
CHAPTERCHAPTER 2222
COST - VOLUME -COST - VOLUME -
PROFITPROFIT
Accounting Principles, Eighth Edition

3. Chapter
22-3
Cost Behavior AnalysisCost Behavior AnalysisCost Behavior AnalysisCost Behavior Analysis
Cost Behavior Analysis isCost Behavior Analysis is
the study of how specific costs respond tothe study of how specific costs respond to
changes in the level of business activity.changes in the level of business activity.
Some costs change; others remain the sameSome costs change; others remain the same
Helps management plan operations and decideHelps management plan operations and decide
between alternative courses of actionbetween alternative courses of action
Applies to all types of businesses and entitiesApplies to all types of businesses and entities
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

4. Chapter
22-4
Cost Behavior Analysis - continuedCost Behavior Analysis - continuedCost Behavior Analysis - continuedCost Behavior Analysis - continued
Starting point isStarting point is measuring key business activitiesmeasuring key business activities
Activity levels may be expressed in terms of:Activity levels may be expressed in terms of:
Sales dollars (in a retail company)Sales dollars (in a retail company)
Miles driven (in a trucking company)Miles driven (in a trucking company)
Room occupancy (in a hotel)Room occupancy (in a hotel)
Dance classes taught (by a dance studio)Dance classes taught (by a dance studio)
Many companies use moreMany companies use more
than one measurement basethan one measurement base
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

5. Chapter
22-5
Cost Behavior Analysis - continuedCost Behavior Analysis - continuedCost Behavior Analysis - continuedCost Behavior Analysis - continued
For an activity level to be useful:For an activity level to be useful:
Changes in the level or volume of activityChanges in the level or volume of activity
should be correlated with changes in costsshould be correlated with changes in costs
The activity level selected is called theThe activity level selected is called the
activity or volume indexactivity or volume index
The activity index:The activity index:
Identifies the activity that causes changes inIdentifies the activity that causes changes in
the behavior of coststhe behavior of costs
Allows costs to be classified according to theirAllows costs to be classified according to their
response to changes in activity as either:response to changes in activity as either:
Variable Costs Fixed Costs Mixed CostsVariable Costs Fixed Costs Mixed Costs
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

6. Chapter
22-6
Variable CostsVariable CostsVariable CostsVariable Costs
Costs thatCosts that varyvary in totalin total directly anddirectly and
proportionately with changes in the activity levelproportionately with changes in the activity level
Example: If the activity levelExample: If the activity level increasesincreases 10 percent,10 percent,
total variable coststotal variable costs increaseincrease 10 percent10 percent
Example: If the activity levelExample: If the activity level decreasesdecreases by 25by 25
percent, total variable costspercent, total variable costs decreasedecrease by 25by 25
percentpercent
Variable costsVariable costs remain constant per unit at everyremain constant per unit at every
level of activity.level of activity.
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

7. Chapter
22-7
Variable Costs – ExampleVariable Costs – ExampleVariable Costs – ExampleVariable Costs – Example
Damon Company manufactures radios thatDamon Company manufactures radios that
contain a $10 clockcontain a $10 clock
Activity index is the number of radios producedActivity index is the number of radios produced
For each radio produced, the total cost of theFor each radio produced, the total cost of the
clocks increases by $10:clocks increases by $10:
If 2,000 radios are made, the total cost of the clocksIf 2,000 radios are made, the total cost of the clocks
is $20,000 (2,000 X $10)is $20,000 (2,000 X $10)
If 10,000 radios are made, the total cost of the clocksIf 10,000 radios are made, the total cost of the clocks
is $100,000 (10,000 X $10)is $100,000 (10,000 X $10)
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

8. Chapter
22-8
Variable Costs – GraphsVariable Costs – GraphsVariable Costs – GraphsVariable Costs – Graphs
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

9. Chapter
22-9
Fixed CostsFixed CostsFixed CostsFixed Costs
Costs thatCosts that remain the same in total regardless ofregardless of
changes in the activity level.changes in the activity level.
Per unit costPer unit cost variesvaries inversely with activity:with activity:
As volume increases,
unit cost declines, and vice versa
Examples include:Examples include:
Property taxesProperty taxes
InsuranceInsurance
RentRent
Depreciation on buildings and equipmentDepreciation on buildings and equipment
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

10. Chapter
22-10
Fixed Costs - ExampleFixed Costs - ExampleFixed Costs - ExampleFixed Costs - Example
Damon Company leases its productive facilities forDamon Company leases its productive facilities for
$10,000 per month$10,000 per month
Total fixed costs of the facilities remain constantTotal fixed costs of the facilities remain constant
at all levels of activity - $10,000 per monthat all levels of activity - $10,000 per month
On aOn a per unitper unit basis, the cost of rent decreases asbasis, the cost of rent decreases as
activity increases and vice versaactivity increases and vice versa
At 2,000 radios, the unit cost isAt 2,000 radios, the unit cost is $5$5
($10,000($10,000 ÷ 2,000 units)÷ 2,000 units)
At 10,000 radios, the unit cost isAt 10,000 radios, the unit cost is $1$1
($10,000($10,000 ÷ 10,000 units)÷ 10,000 units)
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

11. Chapter
22-11
Fixed Costs - GraphsFixed Costs - GraphsFixed Costs - GraphsFixed Costs - Graphs
LO 1: Distinguish between variable and fixed costs.LO 1: Distinguish between variable and fixed costs.

12. Chapter
22-12
Variable costs are costs that:Variable costs are costs that:
a.a. Vary in total directly and proportionately withVary in total directly and proportionately with
changes in the activity levelchanges in the activity level.
b. Remain the same per unit at every activity level.
c. Neither of the above.
d. Both (a) and (b) above.
Let’s ReviewLet’s ReviewLet’s ReviewLet’s Review
LO 1:LO 1: Distinguish between variable and fixed costsDistinguish between variable and fixed costs..

13. Chapter
22-13
Relevant RangeRelevant RangeRelevant RangeRelevant Range
Throughout the range of possible levels of activity,Throughout the range of possible levels of activity,
aa straight-line relationship usually does not exist
for either variable costs or fixed costsfor either variable costs or fixed costs
The relationship between variable costs andThe relationship between variable costs and
changes in activity level is oftenchanges in activity level is often curvilinear
For fixed costs, the relationship is alsoFor fixed costs, the relationship is also nonlinear ––
some fixed costs will not change over the entiresome fixed costs will not change over the entire
range of activities while other fixed costs mayrange of activities while other fixed costs may
change.change.
LO 2: Explain the significance of the relevant range.LO 2: Explain the significance of the relevant range.

14. Chapter
22-14
Relevant Range - GraphsRelevant Range - GraphsRelevant Range - GraphsRelevant Range - Graphs
LO 2: Explain the significance of the relevant range.LO 2: Explain the significance of the relevant range.

15. Chapter
22-15
Relevant RangeRelevant RangeRelevant RangeRelevant Range
Defined as the range of activity over which aDefined as the range of activity over which a
companycompany expects to operate during a year
Within this range, a straight-line relationshipWithin this range, a straight-line relationship
usually exists for both variable and fixed costsusually exists for both variable and fixed costs
LO 2: Explain the significance of the relevant range.LO 2: Explain the significance of the relevant range.

16. Chapter
22-16
The relevant range is:The relevant range is:
a.a. The range of activity in which variable costs willThe range of activity in which variable costs will
be curvilinearbe curvilinear.
b. The range of activity in which fixed costs will be
curvilinear.
c. The range over which the company expects to
operate during a year.
d. Usually from zero to 100% of operating capacity.
Let’s ReviewLet’s ReviewLet’s ReviewLet’s Review
LO 2: Explain the significance of the relevant range.LO 2: Explain the significance of the relevant range.

17. Chapter
22-17
Mixed CostsMixed CostsMixed CostsMixed Costs
Costs that haveCosts that have
both a variablea variable
cost elementcost element
and a fixeda fixed
cost elementcost element
Sometimes calledSometimes called
semivariable cost
ChangeChange in total
but not
proportionately
with changes inwith changes in
activity levelactivity level
LO 3: Explain the concept of mixed costs.LO 3: Explain the concept of mixed costs.

18. Chapter
22-18
Mixed Costs: High–Low MethodMixed Costs: High–Low MethodMixed Costs: High–Low MethodMixed Costs: High–Low Method
Mixed costs must be classified into theirMixed costs must be classified into their fixed
andand variable elementselements
One approach to separate the costs is called theOne approach to separate the costs is called the
high-low method
Uses the total costs incurred at both the high andUses the total costs incurred at both the high and
the low levels of activity to classify mixed coststhe low levels of activity to classify mixed costs
The difference in costs between the high and lowThe difference in costs between the high and low
levelslevels represents variable costs, since only
variable costs change as activity levels changechange
LO 3: Explain the concept of mixed costs.LO 3: Explain the concept of mixed costs.

19. Chapter
22-19
Mixed Costs:Mixed Costs:
Steps in High–Low-MethodSteps in High–Low-Method
Mixed Costs:Mixed Costs:
Steps in High–Low-MethodSteps in High–Low-Method
STEP 1: Determine variable cost per unit using the
following formula:
STEP 2: Determine the fixed cost by subtracting
the total variable cost at either the high
or the low activity level from the total cost
at that level
LO 3: Explain the concept of mixed costs.LO 3: Explain the concept of mixed costs.

20. Chapter
22-20
Mixed Costs:Mixed Costs:
High–Low-Method ExampleHigh–Low-Method Example
Mixed Costs:Mixed Costs:
High–Low-Method ExampleHigh–Low-Method Example
High Level of Activity:High Level of Activity: April $63,000 50,000 milesApril $63,000 50,000 miles
Low Level of Activity:Low Level of Activity: JanuaryJanuary 30,00030,000 20,000 miles20,000 miles
Difference $33,000 30,000 milesDifference $33,000 30,000 miles
Step 1:Step 1: Using the formula, variable costs per unit areUsing the formula, variable costs per unit are
$33,000$33,000 ÷÷ 30,000 =30,000 = $1.10 variable cost per mile$1.10 variable cost per mile
Data for Metro Transit Company for 4 month period:
LO 3: Explain the concept of mixed costs.LO 3: Explain the concept of mixed costs.

21. Chapter
22-21
Mixed Costs:Mixed Costs:
High–Low-Method ExampleHigh–Low-Method Example
Mixed Costs:Mixed Costs:
High–Low-Method ExampleHigh–Low-Method Example
Step 2:Step 2: Determine the fixed costs by subtracting totalDetermine the fixed costs by subtracting total
variable costs atvariable costs at either the high or low activitythe high or low activity
level from the total cost at that same levellevel from the total cost at that same level
LO 3: Explain the concept of mixed costs.LO 3: Explain the concept of mixed costs.

22. Chapter
22-22
Mixed Costs:Mixed Costs:
High–Low-Method ExampleHigh–Low-Method Example
Mixed Costs:Mixed Costs:
High–Low-Method ExampleHigh–Low-Method Example
Maintenance costs:Maintenance costs:
$8,000 per month plus $1.10 per mile$8,000 per month plus $1.10 per mile
To determine maintenance costs at a particularTo determine maintenance costs at a particular
activity level:activity level:
1. multiply the activity level times the
variable cost per unit
2. then add that total to the fixed cost
EXAMPLE: If the activity level is 45,000 miles, theIf the activity level is 45,000 miles, the
estimated maintenance costs would be $8,000estimated maintenance costs would be $8,000
fixed and $49,500 variable ($1.10 X 45,000fixed and $49,500 variable ($1.10 X 45,000
miles) for a total of $57,500.miles) for a total of $57,500.
LO 3: Explain the concept of mixed costs.LO 3: Explain the concept of mixed costs.

23. Chapter
22-23
Mixed costs consist of a:Mixed costs consist of a:
a.a. Variable cost element and a fixed cost elementVariable cost element and a fixed cost element.
b. Fixed cost element and a controllable cost
element.
c. Relevant cost element and a controllable cost
element.
d. Variable cost element and a relevant cost
element.
Let’s ReviewLet’s ReviewLet’s ReviewLet’s Review
LO 3: Explain the concept of mixed costs.LO 3: Explain the concept of mixed costs.

24. Chapter
22-24
Cost-Volume-Profit AnalysisCost-Volume-Profit AnalysisCost-Volume-Profit AnalysisCost-Volume-Profit Analysis
Study of theStudy of the effects of changes of costs and
volume on a company’s profitson a company’s profits
A critical factor in management decisionsA critical factor in management decisions
Important in profit planningImportant in profit planning
LO 4: List the five components of cost-volume-profit analysis.LO 4: List the five components of cost-volume-profit analysis.

25. Chapter
22-25
Cost-Volume-Profit AnalysisCost-Volume-Profit AnalysisCost-Volume-Profit AnalysisCost-Volume-Profit Analysis
CVP analysis considers the interrelationshipsCVP analysis considers the interrelationships
among five basic componentsamong five basic components
LO 4: List the five components of cost-volume-profit analysis.LO 4: List the five components of cost-volume-profit analysis.

26. Chapter
22-26
Assumptions Underlying CVP AnalysisAssumptions Underlying CVP AnalysisAssumptions Underlying CVP AnalysisAssumptions Underlying CVP Analysis
Behavior of both costs and revenues isBehavior of both costs and revenues is linear
throughout thethroughout the relevant range of the activity indexof the activity index
All costs can be classified as eitherAll costs can be classified as either variable or fixed
with reasonable accuracywith reasonable accuracy
Changes inChanges in activity are the only factors that affectare the only factors that affect
costscosts
All unitsAll units produced are sold
When more than one type of product is sold, theWhen more than one type of product is sold, the sales
mix will remain constant
LO 4: List the five components of cost-volume-profit analysis.LO 4: List the five components of cost-volume-profit analysis.

27. Chapter
22-27
Which of the following isWhich of the following is NOTNOT involved in CVP analysis?involved in CVP analysis?
a.a. Sales mixSales mix.
b. Unit selling prices.
c. Fixed costs per unit.
d. Volume or level of activity.
Let’s ReviewLet’s ReviewLet’s ReviewLet’s Review
LO 4: List the five components of cost-volume-profit analysis.LO 4: List the five components of cost-volume-profit analysis.

28. Chapter
22-28
CVP Income StatementCVP Income StatementCVP Income StatementCVP Income Statement
A statement for internal use
Classifies costs and expenses as fixed or variable
Reports contribution margin in the body of the
statement.
Contribution margin –
amount of revenue
remaining after
deducting variable costs
Reports the same net
income as a traditional
income statementincome statement
LO 5: Indicate what contribution margin is and how it can be expressed.LO 5: Indicate what contribution margin is and how it can be expressed.

29. Chapter
22-29
CVP Income Statement - ExampleCVP Income Statement - ExampleCVP Income Statement - ExampleCVP Income Statement - Example
Vargo Video Company produces DVD players.Vargo Video Company produces DVD players.
Relevant data for June 2008:Relevant data for June 2008:
Unit selling price of DVD playerUnit selling price of DVD player $500$500
Unit variable costsUnit variable costs $300$300
Total monthly fixed costsTotal monthly fixed costs $200,000$200,000
Units soldUnits sold 1,6001,600
LO 5: Indicate what contribution margin is and how it can be expressed.LO 5: Indicate what contribution margin is and how it can be expressed.

30. Chapter
22-30
Contribution Margin Per UnitContribution Margin Per UnitContribution Margin Per UnitContribution Margin Per Unit
Contribution margin is availableContribution margin is available to cover fixed
costs and to contribute to income
The formula forThe formula for contribution margin per unit andand
the computation for Vargo Video are:the computation for Vargo Video are:
LO 5: Indicate what contribution margin is and how it can be expressed.LO 5: Indicate what contribution margin is and how it can be expressed.

31. Chapter
22-31
Contribution Margin RatioContribution Margin RatioContribution Margin RatioContribution Margin Ratio
Shows the percentage of each sales dollarShows the percentage of each sales dollar
available to apply toward fixed costs and profitsavailable to apply toward fixed costs and profits
The formula forThe formula for contribution margin ratio and theand the
computation for Vargo Video are:computation for Vargo Video are:
LO 5: Indicate what contribution margin is and how it can be expressed.LO 5: Indicate what contribution margin is and how it can be expressed.

32. Chapter
22-32
Contribution margin:Contribution margin:
a.a. Is revenue remaining after deducting variableIs revenue remaining after deducting variable
costscosts.
b. May be expressed as contribution margin per
unit.
c. Is selling price less cost of goods sold.
d. Both (a) and (b) above.
Let’s ReviewLet’s ReviewLet’s ReviewLet’s Review
LO 5: Indicate what contribution margin is and how it can be expressed.LO 5: Indicate what contribution margin is and how it can be expressed.

33. Chapter
22-33
Break-Even AnalysisBreak-Even AnalysisBreak-Even AnalysisBreak-Even Analysis
Process of finding theProcess of finding the break-even point
level of activity at whichlevel of activity at which total revenues equal
total costs (both fixed and variable)(both fixed and variable)
Can be computed or derivedCan be computed or derived
from a mathematical equation,
by using contribution margin, or
from a cost-volume profit (CVP) graph
Expressed either in sales units or in sales dollars
LO 6: Identify the three ways to determine the break-even point.LO 6: Identify the three ways to determine the break-even point.

34. Chapter
22-34
Break-Even Analysis: Mathematical EquationBreak-Even Analysis: Mathematical EquationBreak-Even Analysis: Mathematical EquationBreak-Even Analysis: Mathematical Equation
Break-even occurs where total sales equal variable
costs plus fixed costs; i.e., net income is zero.
The formula for theThe formula for the break-even point and theand the
computation for Vargo Video are:computation for Vargo Video are:
To findTo find sales dollarssales dollars required to break-even:required to break-even:
1000 units X $500 = $500,000 (break-even dollars)1000 units X $500 = $500,000 (break-even dollars)
LO 6: Identify the three ways to determine the break-even point.LO 6: Identify the three ways to determine the break-even point.

35. Chapter
22-35
Break-Even Analysis:Break-Even Analysis:
Contribution Margin TechniqueContribution Margin Technique
Break-Even Analysis:Break-Even Analysis:
Contribution Margin TechniqueContribution Margin Technique
At the break-even point, contribution margin must
equal total fixed costs
(CM = total revenues – variable costs)
The break-even point can be computed using either
contribution margin per unit or contribution margin
ratio.
LO 6: Identify the three ways to determine the break-even point.LO 6: Identify the three ways to determine the break-even point.

36. Chapter
22-36
Contribution Margin TechniqueContribution Margin TechniqueContribution Margin TechniqueContribution Margin Technique
When the BEP in units is desired, contribution margin
per unit is used in the following formula which shows
the computation for Vargo Video:
When the BEP in dollars is desired, contribution
margin ratio is used in the following formula which
shows the computation for Vargo Video:
LO 6: Identify the three ways to determine the break-even point.LO 6: Identify the three ways to determine the break-even point.

37. Chapter
22-37
Break-Even Analysis: Graphic PresentationBreak-Even Analysis: Graphic PresentationBreak-Even Analysis: Graphic PresentationBreak-Even Analysis: Graphic Presentation
A cost-volume profit (CVP) graph shows costs, volume
and profits.
Used to visually find the break-even point
To construct a CVP graph:To construct a CVP graph:
Plot the total sales line starting at the zero
activity level
Plot the total fixed cost using a horizontal line
Plot the total cost line (starts at the fixed-cost
line at zero activity
Determine the break-even point from the
intersection of the total cost line and the total
sales line
LO 6: Identify the three ways to determine the break-even point.LO 6: Identify the three ways to determine the break-even point.

38. Chapter
22-38
Break-Even Analysis: Graphic PresentationBreak-Even Analysis: Graphic PresentationBreak-Even Analysis: Graphic PresentationBreak-Even Analysis: Graphic Presentation
LO 6: Identify the three ways to determine the break-even point.LO 6: Identify the three ways to determine the break-even point.

39. Chapter
22-39
Gossen Company is planning to sell 200,000 pliers forGossen Company is planning to sell 200,000 pliers for
$4 per unit. The contribution margin ratio is 25%. If$4 per unit. The contribution margin ratio is 25%. If
Gossen will break even at this level of sales, what areGossen will break even at this level of sales, what are
the fixed costs?the fixed costs?
a.a. $100,000$100,000.
b. $160,000.
c. $200,000.
d. $300,000.
Let’s ReviewLet’s ReviewLet’s ReviewLet’s Review
LO 6: Identify the three ways to determine the break-even point.LO 6: Identify the three ways to determine the break-even point.

40. Chapter
22-40
Break-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net Income
Level of sales necessary to achieve a specified
income
Can be determined from each of the approaches usedCan be determined from each of the approaches used
to determine break-even sales/units:to determine break-even sales/units:
from a mathematical equation,
by using contribution margin, or
from a cost-volume profit (CVP) graph
Expressed either in sales units or in sales dollars
LO 7: Give the formulas for determining sales requiredLO 7: Give the formulas for determining sales required
to earn target net income.to earn target net income.

41. Chapter
22-41
Break-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net Income
Mathematical EquationMathematical Equation
Using the formula for theUsing the formula for the break-even point, simply
include the desired net income as a factor. TheThe
computation for Vargo Video is as follows:computation for Vargo Video is as follows:
LO 7: Give the formulas for determining sales required toLO 7: Give the formulas for determining sales required to
earn target net income.earn target net income.

42. Chapter
22-42
Break-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net IncomeBreak-Even Analysis: Target Net Income
Contribution Margin TechniqueContribution Margin Technique
To determine the required sales in units for Vargo
Video:
To determine the required sales in dollars for Vargo
Video:
LO 7: Give the formulas for determining sales required toLO 7: Give the formulas for determining sales required to
earn target net income.earn target net income.

43. Chapter
22-43
The mathematical equation for computing requiredThe mathematical equation for computing required
sales to obtain target net income is:sales to obtain target net income is:
Required sales =Required sales =
a.a. Variable costs + Target net incomeVariable costs + Target net income.
b. Variable costs + Fixed costs + Target net income.
c. Fixed costs + Target net income.
d. No correct answer is given.
Let’s ReviewLet’s ReviewLet’s ReviewLet’s Review
LO 7: Give the formulas for determining sales required toLO 7: Give the formulas for determining sales required to
earn target net income.earn target net income.

44. Chapter
22-44
Break-Even Analysis: Margin of SafetyBreak-Even Analysis: Margin of SafetyBreak-Even Analysis: Margin of SafetyBreak-Even Analysis: Margin of Safety
Difference between actual or expected sales and
sales at the break-even point
Measures the “cushion” that management has if
expected sales fail to materialize
May be expressed in dollars or as a ratio
To determine the margin of safety in dollars for
Vargo Video assuming that actual/expected sales are
$750,000:
LO 8: Define margin of safety, and give the formulas for computing it.LO 8: Define margin of safety, and give the formulas for computing it.

45. Chapter
22-45
Break-Even Analysis: Margin of SafetyBreak-Even Analysis: Margin of SafetyBreak-Even Analysis: Margin of SafetyBreak-Even Analysis: Margin of Safety
Margin of Safety RatioMargin of Safety Ratio
 Computed by dividing the margin of safety in dollars
by the actual or expected sales
 To determine the margin of safety ratio for Vargo
Video assuming that actual/expected sales are
$750,000:
 The higher the dollars or the percentage, theThe higher the dollars or the percentage, the
greater the margin of safetygreater the margin of safety
LO 8: Define margin of safety, and give the formulas for computing it.LO 8: Define margin of safety, and give the formulas for computing it.

46. Chapter
22-46
Marshall Company had actual sales of $600,000 whenMarshall Company had actual sales of $600,000 when
break-even sales were $420,000. What is the marginbreak-even sales were $420,000. What is the margin
of safety ratio?of safety ratio?
a.a. 25%25%.
b. 30%.
c. 33 1/3%.
d. 45%.
Let’s ReviewLet’s ReviewLet’s ReviewLet’s Review
LO 8: Define margin of safety, and give the formulas forLO 8: Define margin of safety, and give the formulas for
computing it.computing it.