Refer to the exhibit.
X Enterprises runs a private nursing home for the elderly. The company are concerned that bed occupancy rates have been falling over the past 2 years with a consequential effect on profit.
They have drawn up a budget for next year as follows:
The nursing home currently charges $90 per patient day.
The nursing home operates at 7,500 patient days per year. In an effort to increase occupancy rates the company are proposing to reduce the current price by 10% and increase spending on advertising by $10,000 each year.
What effect will this have on the margin of safety?
A . Reduce the margin of safety by 1,178 days
B . Reduce the margin of safety by 622 days
C . Increase the margin of safety by 1,178 days
D . Increase the margin of safety by 622 days
Answer: A
Leave a Reply