Henderson Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales?
A) 25%.
B) 75%.
C) 6%.
D) 33%.
E) 50%.

Question

Quizplus · Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-even Sales) / Actual Sales. Break-even Sales = Fixed Costs / Contribution Margin Ratio = $36,000 / 0.24 = $150,000. Margin of Safety = ($200,000 - $150,000) / $200,000 = 25%.