Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 96

A clothing company sells shirts for $8 per shirt. In order to break even, the company must sell 25,000 shirts. Actual sales total $300,000.

What is margin of safety sales for the company?

Answer options

Correct answer: A

Explanation

The margin of safety is calculated by subtracting the break-even sales from actual sales. The break-even point is 25,000 shirts multiplied by $8, which equals $200,000. Actual sales are $300,000, so the margin of safety is $300,000 - $200,000 = $100,000. The other options represent incorrect calculations of margin of safety, either from misinterpreting the total sales or the break-even point.