Evergreen Corp. has provided the following dа ta: Sales per period ... 1,000 units Selling price ... $40 per unit Variable manufacturing cost ... $12 per unit Selling expenses ... $5,100 plus 5% of selling price Administrative expenses ... $3,000 plus 20% of selling price The margin of safety percentage is:

The correct answer is 55%.

Explanation:

According to the scenario, the computation of the given data are as follows:

Fixed cost = Selling expense + Administrative expense = $5,100 + $3,000

= $8,100

Now variable cost = 12 + (40 * 5%) + (40 * 20%) = 12 + 2 + 8

= $22

So, we can calculate the margin of safety by using following formula:

Margin of safety = Actual Sales - Breakeven Sales

Where, Breakeven sales = $8,100 : (40 - 22) = 450 units

So, Margin of safety = 1,000 - 450 units = 550 units

So, Margin of safety percentage = 550 units : 1,000 units

= 0.55 or 55%