Henderson Co.has fixed costs of $36,000 and a contribution margin ratio of 24%.If expected sales are $200,000,what is the margin of safety as a percent of sales?
A)6%.
B)25%.
C)33%.
D)50%.
E)75%.

Question

Quizplus · Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-even Sales) / Actual Sales. First, calculate the break-even sales: Fixed Costs / Contribution Margin Ratio = $36,000 / 0.24 = $150,000. Then, Margin of Safety = ($200,000 - $150,000) / $200,000 = $50,000 / $200,000 = 0.25 or 25%.