Shambo Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.

-The margin of safety percentage is closest to:
A) 27%
B) 70%
C) 22%
D) 8%

Question

Shambo Corporation has provided the following contribution format income statement. All questions concern situations that are within the relevant range.
 
-The margin of safety percentage is closest to:
A) 27% 
B) 70% 
C) 22% 
D) 8%

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