The margin of safety is Select one: A. the excess of sales over variable expenses. B. the excess of sales over the break-even volume of sales. C. the excess of net operating income over actual net operating income. D. the excess of sales over fixed expenses.

Question

Carla Marsh

Business

20 May, 10:53

The margin of safety is Select one: A. the excess of sales over variable expenses. B. the excess of sales over the break-even volume of sales. C. the excess of net operating income over actual net operating income. D. the excess of sales over fixed expenses.

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Answers (1)

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Bentley Conrad · Answer 1

B. the excess of sales over the break-even volume of sales.

Explanation:

The formula to compute the margin of safety is shown below:

The margin of safety = Expected sales - break-even sales

where,

Expected sales = Selling price per unit * Unit sales

And, the break-even sales equal to

= (Fixed cost) : (Contribution margin Ratio)

where,

Contribution margin per unit = Selling price per unit - Variable expense per unit