The margin of safety ratio can be defined as the:
A) Excess of budgeted sales over break-even sales divided by break-even sales.
B) Excess of budgeted sales over break-even sales divided by budgeted sales.
C) Excess of budgeted sales over fixed costs divided by budgeted sales.
D) Excess of budgeted sales over variable costs divided by budgeted sales.

Question

Quizplus · Accepted Answer

The margin of safety ratio is calculated by taking the difference between the budgeted (or actual) sales and the break-even sales, and then dividing that number by the budgeted (or actual) sales. This measures how much sales can drop before the company reaches its break-even point.

The Margin of Safety Ratio Can Be Defined as The