What is the formula to calculate the margin of safety in dollars?
A)expected sales - expected profit
B)expected sales - sales at break-even
C)costs at break-even - expected profit
D)expected costs - costs at break-even

Question

Quizplus · Accepted Answer

Margin of safety is the difference between actual or expected sales and sales at the break-even point. Therefore, option B is the correct formula for calculating the margin of safety in dollars. Option A is simply calculating the expected profit, which is not the margin of safety. Option C is calculating the contribution margin, not the margin of safety. Option D is calculating a variation of the cost-volume-profit analysis, but again, not the margin of safety.

What Is the Formula to Calculate the Margin of Safety