BETA sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows:
If BETA increases its sales volume by 10%, what will happen to its margin of safety?

A) It will decrease
B) It will increase
C) It will stay the same
D) Cannot be determined

Question

BETA sells its single product for $14 per unit, and its variable cost per unit is $4. Total fixed costs are $800. Its CVP graph is as follows:
If BETA increases its sales volume by 10%, what will happen to its margin of safety?

A) It will decrease 
B) It will increase 
C) It will stay the same 
D) Cannot be determined

Quizplus · Accepted Answer

Margin of safety is the difference between actual sales and break-even sales. When sales volume increases, the break-even point shifts to a higher level of sales, resulting in an increase in the margin of safety. Therefore, the correct answer is (B) it will increase.

BETA Sells Its Single Product for $14 Per Unit, and Its