The margin of safety is equal to Sales Net operating income

The margin of safety is equal to:

Sales - Net operating income.

Sales - (Variable expenses/Contribution margin).

Sales - (Fixed expenses/Contribution margin ratio).

Sales - (Variable expenses + Fixed expenses).

Solution

Correct answer is option C.Sales - Fixed expenses/Contribution margin ratio

The formula for calculating Margin of safety = Sales - Break even sales

Here Break even sale is calculated by following formula,

BEP Sales=Fixed expenses/Contribution margin ratio