What is the margin of safety (in sales) when a business has sales of $485,000, sales of $225,000 at break-even point, and unit selling price of $55?
A) $710,000
B) $280,000
C) $260,000
D) $510,000

Question

Quizplus · Accepted Answer

The margin of safety (in sales) can be calculated by subtracting the break-even point sales from the actual or budgeted sales, and dividing the result by actual or budgeted sales, then multiplying that by 100 to get a percentage. 
Margin of safety (in sales) = [(Actual or Budgeted Sales - Break-Even Point Sales) / Actual or Budgeted Sales] x 100
Margin of safety (in sales) = [($485,000 - $225,000) / $485,000] x 100
Margin of safety (in sales) = 53.61%

Therefore, the business has a margin of safety of 53.61%. To find the dollar amount of the margin of safety, we can multiply the margin of safety percentage by actual or budgeted sales:
Margin of safety (in dollars) = Margin of safety (in sales) x Actual or Budgeted Sales
Margin of safety (in dollars) = 53.61% x $485,000
Margin of safety (in dollars) = $260,000

So the best choice is C, $260,000 as the margin of safety.

What Is the Margin of Safety (In Sales) When a Business