The margin of safety is equal to:

Question

Quizplus · Accepted Answer

The margin of safety is the difference between actual or projected sales and the sales at the break-even point. Therefore, it can be calculated as the amount of sales above the break-even point. The break-even point can be determined either by using the equation method or the contribution margin method. The contribution margin method divides the total fixed expenses by the contribution margin ratio, which is the contribution margin divided by sales. Therefore, the margin of safety can be calculated as Sales - (Fixed expenses/Contribution margin ratio).

The Margin of Safety Is Equal To