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    Question

    A company reports the following for the year:

    >Sales = ₹12,00,000 Variable Costs = ₹7,20,000 Fixed Costs = ₹3,60,000 Based on the above information, what is the Margin of Safety (in ₹)?
    A ₹1,20,000 Correct Answer Incorrect Answer
    B ₹1,80,000 Correct Answer Incorrect Answer
    C ₹2,40,000 Correct Answer Incorrect Answer
    D ₹3,00,000 Correct Answer Incorrect Answer
    E ₹3,60,000 Correct Answer Incorrect Answer

    Solution

    Contribution = Sales - Variable Costs = ₹12,00,000 - ₹7,20,000 = ₹4,80,000.   P/V Ratio = (Contribution / Sales) × 100 = 4,80,000/12,00,000 = 40%.   Break-Even Sales = Fixed Costs / P/V Ratio = ₹3,60,000 / 40% = ₹9,00,000.   Margin of Safety = Actual Sales - Break-Even Sales = ₹12,00,000 - ₹9,00,000 = ₹3,00,000

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