Which of the following statements regarding the margin of safety is not true?
A) The margin of safety is the mix between fixed and variable costs.
B) The margin of safety indicates how much revenue can decrease before reaching the break-even point.
C) A small margin of safety should motivate managers to reduce costs and increase sales to avoid potential losses.
D) The margin of safety in units is equal to the actual or estimated units of activity minus units at break-even point.

Question

Quizplus · Accepted Answer

The margin of safety is not related to the mix between fixed and variable costs. It represents the cushion between actual or estimated sales and the break-even point.

Which of the Following Statements Regarding the Margin of Safety