A company with an operating income of $92,000 and a contribution margin ratio of 74% has a margin of safety of: (rounded)

Choose Correct Answer Below:

$68,080.

$124,324.

$353,846.

It is not possible to determine the margin of safety from the information provided.

The correct answer is $124,324.

Explanation:

The basic formula to calculate margin of safety is

Budgeted sales - Break even sales.

Here in this question the information we need to calculate the margin of safety from above formula is not provided. We will then use Contribution margin ratio to calculate margin of safety as,

Contribution Margin = (Sales - Variable Cost) / Sales

74 % = Operating Income / Sales

Sales = $92,000 / 74%

= $124,324.