Cost Management: A Strategic Emphasis 7th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 46

CVP Analysis, DOL, and Margin of Safety (MOS) As noted in the text, the margin of safety (MOS) represents the amount by which sales (either actual or budgeted) can fall before the organization experiences a loss. On the other hand, the margin of safety ratio (MOS%) is the percentage by which sales can fall before a loss is experienced. This ratio is defined as MOS divided by budgeted or actual sales. Both measures are rough indicators of risk. Use the definition of MOS% and your algebraic skills to respond to the following requirement.
Required Demonstrate, using separate equations for MOS% and DOL that MOS% and DOL are functionally related. Specifically, show that MOS% = 1 ÷ 4 DOL. Of what interpretive or managerial value is this finding