**Understanding Mercantile Corporation's Financials**Mercantile Corporation has the following financial details:- **Sales**: $2,000,000- **Variable Costs**: $800,000- **Fixed Costs**: $900,000**Calculating the Margin of Safety Ratio**The margin of safety ratio is a financial metric that indicates the amount by which sales can drop before the business reaches its break-even point. Here are the possible options for Mercantile Corporation's margin of safety ratio:- 0.15- 0.25- 0.33- 0.75To find the correct margin of safety ratio, you'll need to use the formula:\[ \text{Margin of Safety Ratio} = \frac{\text{Sales} - \text{Break-even Sales}}{\text{Sales}} \]Calculate the break-even point by using fixed costs and contribution margin (sales minus variable costs).This educational exercise helps you understand the financial health and resilience of businesses like Mercantile Corporation.

Margin of safety is difference between total sales revenue and break even sales Margin of safety =…

Answered: Mercantile Corporation has sales of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Mercantile Corporation has sales of $2,000,000, variable costs of $800,000, and fixed costs of $900,000. Mercantile's margin of safety ratio is 15. .25. 33. .75.