10 THE MARGIN OF SAFETY IS THE EXCESS OF SHIFT WOULD CAUSE THE AVERA...

6-10 The margin of safety is the excess of

shift would cause the average contribution mar-

budgeted (or actual) sales over the break-even

gin ratio in the company to decline, resulting in

volume of sales. It states the amount by which

less total contribution margin for a given amount

sales can drop before losses begin to be in-

of sales. Thus, net operating income would de-

curred.

cline. With a lower contribution margin ratio, the

break-even point would be higher since it would