Consider the income statement for Pickbury Farm: What is the margin of safety ratio (to the nearest percentage point)?
A)47%
B)70%
C)30%
D)88%

Question

Consider the income statement for Pickbury Farm:  What is the margin of safety ratio (to the nearest percentage point)?
A)47% 
B)70% 
C)30% 
D)88%

Quizplus · Accepted Answer

Break-even point in dollars = Fixed cost / contribution margin ratio
Break-even point = $80,000 / ($150,000/$500,000)
Break-even point = $80,000 / 30% = $266,667
Margin of safety ratio = (sales - break-even sales) / sales
Margin of safety ratio = ($500,000 - $266,667) / $500,000
Margin of safety ratio = $233,333 / $500,000 = 46.67%

Consider the Income Statement for Pickbury Farm: What Is