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CS Executive · Corporate Accounting and Financial Management · Operational Approach to Financial Decision

Rao Electricals has break-even sales of Rs 8,00,000 and actual sales of Rs 10,00,000. Its margin of safety ratio is:

The margin of safety ratio is 20%. Margin of safety is actual sales of Rs 10,00,000 less break-even sales of Rs 8,00,000, which is Rs 2,00,000, and this is expressed as a percentage of actual sales, giving 20%.

  1. A80%
  2. B25%
  3. C20%Correct
  4. D12.5%

Explanation

Margin of safety = actual sales - break-even sales = Rs 2,00,000. Ratio = 2,00,000 / 10,00,000 = 20% of actual sales. 25% wrongly uses break-even sales as the base.

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