A business has a capacity of $4,000,000 of sales, actual sales of $1,500,000, break-even sales of $900,000, fixed costs of $540,000, and variable costs that are 40% of sales.What is the margin of safety expressed as a percentage of sales?
A) 40%
B) 42%
C) 33%
D) 35%

Question

Quizplus · Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-even Sales) / Actual Sales. Here, it is ($1,500,000 - $900,000) / $1,500,000 = 0.4 or 40%.

A Business Has a Capacity of $4,000,000 of Sales, Actual