A company with an operating income of $72,000 and a contribution margin ratio of 56% has a margin of safety of: (rounded)

Question

Quizplus · Accepted Answer

We can use the formula Margin of Safety = Total Sales - Break-Even Sales. However, we are not given information on the total sales or break-even sales. Alternatively, we can use the formula Margin of Safety = Actual Sales - Break-Even Sales. Since we are not given the break-even sales, we cannot calculate the margin of safety using this formula either. However, we are given the operating income and contribution margin ratio, which allows us to calculate the total sales. Using the formula Total Sales = Operating Income / Contribution Margin Ratio, we get Total Sales = $72,000 / 0.56 = $128,571. Therefore, the margin of safety is Total Sales - Break-Even Sales, which we cannot calculate without the break-even sales. Hence, the best choice is B, which provides the total sales calculated using the given information.

A Company with an Operating Income of $72,000 and a Contribution