The margin of safety is Select one: A. the excess of sales over variable expenses. B. the excess of sales over the break-even volume of sales. C. the excess of net operating income over actual net operating income. D. the excess of sales over fixed expenses.

Question

Business

Sox

18 October, 19:28

The margin of safety is Select one: A. the excess of sales over variable expenses. B. the excess of sales over the break-even volume of sales. C. the excess of net operating income over actual net operating income. D. the excess of sales over fixed expenses.

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Darian Saunders · Answer 1

B. the excess of sales over the break-even volume of sales.

Explanation:

The formula to compute the margin of safety is shown below:

The margin of safety = Expected sales - break-even sales

where,

Expected sales = Selling price per unit * Unit sales

And, the break-even sales equal to

= (Fixed cost) : (Contribution margin Ratio)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit