Warner Manufacturing reported sales of $2,000,000 last year (100,000 units at $20 each), when the break-even point was 80,000 units. Warner's margin of safety ratio is
A) 20%.
B) 25%.
C) 80%.
D) 120%.

Question

Quizplus · Accepted Answer

The margin of safety ratio is calculated as (Actual Sales - Break-even Sales) / Actual Sales. Here, actual sales are 100,000 units, and the break-even point is 80,000 units. So, the margin of safety is (100,000 - 80,000) / 100,000 = 20%.

Warner Manufacturing Reported Sales of $2,000,000 Last Year (100,000 Units