waterway industries reported sales of $2000000 last year (100000 units at $20 each), when the break-even point was 73000 units. waterway's margin of safety ratio is

The **margin of safety** ratio measures how much sales can drop before a business reaches its break-even point. It’s an indicator of risk, showing the buffer between actual sales and the break-even sales.

The formula for the margin of safety ratio is:

\[
\text{Margin of Safety Ratio} = \frac{\text{Actual Sales} - \text{Break-even Sales}}{\text{Actual Sales}}
\]

From the problem:
- **Actual Sales** = 100,000 units
- **Break-even Sales** = 73,000 units

First, calculate the margin of safety in units:

\[
\text{Margin of Safety (units)} = 100,000 - 73,000 = 27,000 \text{ units}
\]

Now, calculate the margin of safety ratio:

\[
\text{Margin of Safety Ratio} = \frac{27,000}{100,000} = 0.27 \text{ or } 27\%
\]

### Conclusion:
Waterway Industries’ margin of safety ratio is **27%**.

Would you like to explore further details, or have any questions about this calculation? Here are five related questions to expand on this:

1. What are the implications of a high margin of safety ratio for a company?
2. How does the margin of safety ratio change if the break-even point increases?
3. How is the break-even point calculated in cost-volume-profit analysis?
4. What are the factors that affect a company's break-even point?
5. How would Waterway's financials change if sales dropped to the break-even point?

**Tip:** A higher margin of safety ratio means a company can endure more sales decline before reaching break-even, indicating lower financial risk.

Waterway Industries reported sales of $2,000,000 last year (100,000 units at $20 each), when the break-even point was 73,000 units. Waterway's margin of safety ratio is...

Learn how to calculate the margin of safety ratio for Waterway Industries, using actual sales of 100,000 units and a break-even point of 73,000 units. This problem demonstrates key cost-volume-profit analysis concepts and risk assessment, suitable for high school finance students.

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