The margin of safety is equal to:

Question

Quizplus · Accepted Answer

The margin of safety is the amount by which sales can decrease before a company is unable to cover its fixed expenses. It can be calculated as Sales - (Fixed expenses/Contribution margin ratio). This formula takes into account both the fixed expenses and the contribution margin, which is the amount by which sales exceed variable expenses. Option A and D do not factor in the contribution margin, while option B includes only variable expenses and not fixed expenses.

The Margin of Safety Is Equal To