Asked by Maria del Mar Ribas on Jul 04, 2024
Verified
The margin of safety percentage is computed as:
A) Break-even sales/Total sales.
B) (Total sales - Break-even sales) /Break-even sales.
C) Total sales - Break-even sales.
D) (Total sales - Break-even sales) /Total sales.
Margin of Safety Percentage
A financial ratio indicating the difference between actual sales and break-even sales, used to determine the risk of incurring a loss.
Break-even Sales
The level of sales at which a business neither makes a profit nor a loss, calculated by dividing fixed costs by the contribution margin ratio.
Total Sales
The overall revenue generated from goods or services sold by a business in a specific period.
- Learn how to compute the margin of safety and its implications for business stability.
Verified Answer
JF
JENNIFER FANELLIJul 11, 2024
Final Answer :
D
Explanation :
The margin of safety percentage is calculated as the difference between the total sales and the break-even sales, divided by the total sales. This gives the percentage of sales above the break-even point, indicating how much sales can decrease before the company starts incurring a loss. Hence, option D is the correct answer.
Learning Objectives
- Learn how to compute the margin of safety and its implications for business stability.