Puchalla Corporation sells a product for $130 per unit. The product's current sales are 12,400 units and its break-even sales are 11,036 units. The margin of safety as a percentage of sales is closest to:

a. 89%
b. 88%
c. 12%
d. 11%

Option (d) is correct.

Explanation:

Given that,

Selling price per unit = $130

Product's current sales = 12,400 units

Break-even sales = 11,036 units

Current sales = Number of units in sales × Selling price of each unit

                       = 12,400 units × $130

                       = $1,612,000

Break even sales in dollar amount:

= Break even sales × Selling price of each unit

= 11,036 units × $130

= $1,434,680

Therefore,

Margin of safety:

= Current sales in dollar amount - Break even sales in dollar amount

= $1,612,000 - $1,434,680

= $177,320

Hence, the margin of safety as a percentage of sales is as follows:

= (Margin of safety ÷ Current sales) × 100

= ($177,320 ÷ $1,612,000) × 100

= 0.11 × 100

= 11%

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