Austin,Brown,and Freeman Companies Below are income statements that apply to three companies: Austin,Brown,and Freeman:

Austin Co. Brown Co. Freeman Co.

Sales $100 $100 $100

Variable costs (10) (20) (30)

Contribution margin $ 90 $ 80 $ 70

Fixed costs (30) (20) (10)

Profit before taxes $ 60 $ 60 $ 60

Refer to Austin,Brown,and Freeman Companies.At sales of $100,which firm has the highest margin of safety?

Question

Austin,Brown,and Freeman Companies Below are income statements that apply to three companies: Austin,Brown,and Freeman:

	Austin Co.	Brown Co.	Freeman Co.
Sales	$100	$100	$100
Variable costs	(10)	(20)	(30)
Contribution margin	$ 90	$ 80	$ 70
Fixed costs	(30)	(20)	(10)
Profit before taxes	$ 60	$ 60	$ 60

Refer to Austin,Brown,and Freeman Companies.At sales of $100,which firm has the highest margin of safety?

Quizplus · Accepted Answer

Margin of safety is the difference between actual or expected sales and the break-even point. To calculate the margin of safety, we subtract the break-even point from the actual or expected sales.

For Austin Company: 
Margin of safety = Actual sales - Break-even point 
= $100 - $90 
= $10

For Brown Company: 
Margin of safety = Actual sales - Break-even point 
= $100 - $100 
= $0

For Freeman Company: 
Margin of safety = Actual sales - Break-even point 
= $100 - $80 
= $20

Therefore, Freeman Company has the highest margin of safety among the three companies.

Austin,Brown,and Freeman Companies Below Are Income Statements That Apply to Three Companies: Austin,Brown,and