Given the following information for Ralph Corporation: Sales = \$500,000, Break-even Sales = \$400,000. What is Ralph Corporation’s margin of safety in dollars?

• A. \$100,000
• B. \$400,000
• C. \$500,000
• D. \$900,000

Answer: (A)

Verified step by step guidance

1. Understand the concept of margin of safety: It represents the amount by which sales exceed the break-even sales, indicating the cushion available before the company incurs a loss.
2. Identify the formula for margin of safety in dollars: Margin of Safety = Sales - Break-even Sales.
3. Substitute the given values into the formula: Sales = \$500,000 and Break-even Sales = \$400,000.
4. Perform the subtraction operation: Calculate \$500,000 - \$400,000 to determine the margin of safety.
5. Interpret the result: The margin of safety in dollars represents the financial buffer Ralph Corporation has above its break-even point.