To find the margin of safety ratio, we will follow these steps:
1. Identify the given values:
- The actual sales are [tex]$1,000,000.
- The break-even sales are $[/tex]600,000.
2. Calculate the margin of safety in dollars:
- The margin of safety is the amount by which actual sales exceed the break-even sales.
- Formula: Margin of Safety = Actual Sales - Break-even Sales
- So, Margin of Safety = [tex]$1,000,000 - $[/tex]600,000 = [tex]$400,000.
3. Calculate the margin of safety ratio:
- This ratio is the margin of safety expressed as a percentage of actual sales.
- Formula: Margin of Safety Ratio = (Margin of Safety / Actual Sales) * 100%
- So, Margin of Safety Ratio = ($[/tex]400,000 / $1,000,000) * 100% = 40.0%
The margin of safety ratio is 40%.
Thus, the correct answer is:
1) 40%.
