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%