Break - even point occurs at 40% of` total capacity, margin of safety will be .a.40% .b.60% .c.85% .d.80% .
Question
Break - even point occurs at 40% of total capacity, margin of safety will be
- a. 40%
- b. 60%
- c. 85%
- d. 80%
Solution
The break-even point is the point at which total revenue equals total costs, meaning there is no profit or loss. In this case, it is given that the break-even point occurs at 40% of total capacity.
The margin of safety is the difference between the actual or expected sales and the sales at the break-even point. It is usually expressed as a percentage of actual or expected sales.
If the break-even point is at 40% of total capacity, this means that 60% of total capacity is the margin of safety. This is because the company has to reach 40% of total capacity to cover all costs, and anything above that contributes to profit.
So, the margin of safety is 60% (option b).
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