The margin of safety:
A) indicates the amount of revenue in excess of the break-even point.
B) indicates the number of sales units that can be lost before the break-even units are reached.
C) if small, may require managers to focus on reducing costs to avoid potential loss.
D) all of the above options are correct.

Question

Quizplus · Accepted Answer

The margin of safety can be calculated as the difference between actual sales and the break-even point, indicating the amount of revenue in excess of the break-even point (Option A). It can also be calculated as the number of sales units that can be lost before the break-even units are reached, indicating the level of sales risk (Option B). A small margin of safety may require managers to focus on reducing costs to avoid potential loss (Option C). Therefore, all three options are correct and the best choice is D.

The Margin of Safety