If the volume of sales is $6,000,000 and sales at the break-even point amount to $4,800,000,the margin of safety is 20%.

Question

Quizplus · Accepted Answer

Margin of safety is calculated as:

Margin of Safety = (Actual Sales - Break-Even Sales) / Actual Sales

In this case, 
Actual Sales = $6,000,000 
Break-Even Sales = $4,800,000

So, 
Margin of Safety = ($6,000,000 - $4,800,000) / $6,000,000 
Margin of Safety = $1,200,000 / $6,000,000 
Margin of Safety = 0.2 or 20%

Therefore, the given statement is true.

If the Volume of Sales Is $6,000,000 and Sales at the Break-Even