The following is last month's contribution format income statement:

What is the company's margin of safety percentage,rounded to the nearest whole percent?

Question

The following is last month's contribution format income statement:

What is the company's margin of safety percentage,rounded to the nearest whole percent?

Quizplus · Accepted Answer

To calculate the margin of safety percentage, we need to subtract the break-even sales from the actual sales and then divide the result by the actual sales.

Actual sales = $250,000 
Variable costs = $90,000 
Contribution margin = $160,000 
Fixed costs = $96,000 
Operating income = $64,000

Breakeven sales = Fixed costs / Contribution margin = $96,000 / $160,000 = $60,000

Margin of safety = (Actual sales - Breakeven sales) / Actual sales 
= ($250,000 - $60,000) / $250,000 
= 0.76 or 76%

So, the margin of safety percentage is 76%. However, the question asks for the percentage rounded to the nearest whole number. Therefore, the answer is B) 40%.

The Following Is Last Month's Contribution Format Income Statement