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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![**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
- 0.75
To 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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F49b6872f-8540-4d67-8f44-b13749eac041%2F20e70b91-ee92-4ad8-824d-c7dc7f94be4d%2Fpmpimyd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**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
- 0.75
To 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.
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