Chapter 21, Problem 21.7APE

To determine

Margin of Safety: It is a measure that shows the probability of decrease in the sales level before a company faces an operating loss or reaches its break-even point. It is expressed in terms of dollars of sales, unit of sales, and percent of current sales. The formula to calculate the margin of safety as a percent of current sales is as follows:

$\text{ Margin}\text{of}\text{Safety}=\frac{\text{Sales}-\text{Sales}\text{at}\text{Break-Even}\text{Point}}{\text{Sales}}$

the Company M’s margin of safety as a percent of current sales.