Final answer:
The margin of safety ratio is calculated as (Actual Sales - Break-Even Sales) / Actual Sales. For the Lagerfeld Company with actual sales of $800,000 and break-even sales of $600,000, the correct margin of safety ratio is 25%, which is not given as an option in the provided choices. The correct option is none of these.
Step-by-step explanation:
The question is asking to calculate the margin of safety ratio, which is a concept used in business and accounting to assess the risk of a company's current level of sales. To calculate the margin of safety ratio, you need to know the actual sales and the break-even sales. The formula for the margin of safety ratio is (Actual Sales - Break-Even Sales) / Actual Sales. Applying the provided figures:
- Actual Sales = $800,000
- Break-Even Sales = $600,000
Margin of Safety Ratio = ($800,000 - $600,000) / $800,000 = $200,000 / $800,000 = 0.25 or 25%
This means the margin of safety ratio is 25%. However, since this option is not provided in the multiple-choice answers, it appears there has been a mistake in the question. The correct answer should be 25%, but none of the options A) 1%, B) 2%, C) 4%, D) 6% represent the right answer.