In evaluating the margin of safety the
A) break-even point is not relevant.
B) higher the margin of safety ratio the greater the margin of safety.
C) higher the dollar amount the lower the margin of safety.
D) higher the margin of safety ratio the lower the fixed costs.

Question

Quizplus · Accepted Answer

The margin of safety ratio measures the excess of actual or expected sales over the break-even sales. Therefore, a higher margin of safety ratio indicates a greater margin of safety. Option A is incorrect as the break-even point is relevant as it is used to calculate the margin of safety. Option C is incorrect as a higher dollar amount indicates a higher margin of safety. Option D is incorrect as there is no direct correlation between the margin of safety ratio and fixed costs.

In Evaluating the Margin of Safety the