Margin of Safety is computed as:
ASales − Variable Cost
BSales − Break-Even Sales
CEBIT − Interest
DContribution − Fixed Cost
Answer & Solution
Correct answer: B. Sales − Break-Even Sales
1. Margin of Safety = Actual Sales − Break-Even Sales.
2. Expressed in value or as a percentage of actual sales.
3. Higher MoS = lower business risk.
_Source: ICAI BoS CA Inter Paper 6A, Ch 6 "Financing Decisions — Leverages", §3 — BEP & MoS_