Question

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.

Answer 1

Answer:

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