A company has a break-even point of RM100,000 and current sales of RM150,000. What is the company's margin of safety as a percentage?

Question

BlackTom AI · Accepted Answer

The scenario presents a break-even analysis: the break-even point is RM100,000 and current sales are RM150,000. We need to compute the margin of safety as a percentage of current sales.
Option 1: 100.00% — This would imply that all sales exceed break-even by 100% of sales, which would require margin of safety of (Sales − BE) / Sales = 1.0. But with Sales = 150k and BE = 100k, the actual margin is (150k − 100k) / 150k = 50k / 150k ≈ 0.333 or 33.3%, not 100%.
Option 2: 66.67% — This would occur if the margin of safety were (Sales − BE) / BE, or if you miscomputed relative to the break-even figure rather than sales. Correct calculation uses sales as the denominator, giving a smaller percentage, not 66.67%.
Option 3: 33.33% — This matches the standard formula: Margin of safety (%) = (Actual sales − Break-even sales) / Actual sales × 100. Substituting gives (150,000 − 100,000) / 150,000 = 50,000 / 150,000 = 1/3 ≈ 0.3333, i.e., 33.33%. This is the accurate result for the given numbers.
Option 4: 50.00% — This would correspond to simply the difference (Sales − BE) as a proportion of BE or a mishandled denominator. The correct denominator is actual sales, so this value is not correct for margin of safety as a percentage of sales.
Overall, the only option that aligns with the standard margin of safety formula using actual sales as the base is 33.33%, since the calculation yields 50,000 over 150,000, which is 33.33%.

2601-ACC1064 FUNDAMENTALS OF ACCOUNTING Pop Quiz 2 2601-ACC1064 FUNDAMENTALS OF ACCOUNTING Pop Quiz 2

A company has a break-even point of RM100,000 and current sales of RM150,000. What is the company's margin of safety as a percentage?

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