Shambo Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. The margin of safety percentage is closest to:

Question

Shambo Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range.  The margin of safety percentage is closest to:

Quizplus · Accepted Answer

CM ratio = Contribution margin ÷ Sales = $18,000 ÷ $60,000 = 30%
Dollar sales to break even = Fixed expenses ÷ CM ratio = $13,200 ÷ 30% = $44,000
Margin of safety in dollars = Total budgeted (or actual) sales − Break-even sales
= $60,000 − $44,000 = $16,000
Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales
= $16,000 ÷ $60,000 = 27%

Shambo Corporation Has Provided the Following Contribution Format Income Statement