James Company has a margin of safety percentage of 20%. The
Break-even point is £200,000 and the variable expenses are 45% of
Sales. Given this information, the net operating income is

Question

Quizplus · Accepted Answer

The margin of safety is the difference between actual sales and break-even sales, expressed as a percentage of actual sales. In this case, the margin of safety is 20%, which means that actual sales are 120% of break-even sales. The break-even point is £200,000, so actual sales are £240,000. Variable expenses are 45% of sales, so variable expenses are £108,000. Net operating income is sales minus variable expenses, so net operating income is £132,000.

James Company Has a Margin of Safety Percentage of 20