The margin of safety is a key concept of CVP analysis.The margin of safety is the
A)contribution margin rate.
B)difference between budgeted contribution margin and actual contribution margin.
C)difference between budgeted contribution margin and break-even contribution margin.
D)difference between budgeted sales and break-even sales.

Question

Quizplus · Accepted Answer

The margin of safety is the difference between actual or budgeted sales and the break-even sales. It represents the amount by which sales can decrease before the company reaches the break-even point. Therefore, option D - difference between budgeted sales and break-even sales is the correct answer. Option A is incorrect because the contribution margin rate is the amount of contribution margin earned per dollar of sales. Option B is incorrect because it refers to the difference between two contribution margins, not the margin of safety. Option C is incorrect because it does not consider actual sales, only budgeted contribution margin and break-even contribution margin.

The Margin of Safety Is a Key Concept of CVP