If sales remain the same and the margin of safety increases, which of the following is true?
A) The break-even point has decreased.
B) The common fixed costs have increased.
C) The break-even point has remained constant.
D) Variable costs have increased.
E) None of these choices are correct.

Question

If sales remain the same and the margin of safety increases, which of the following is true?
A) The break-even point has decreased.
B) The common fixed costs have increased.
C) The break-even point has remained constant.
D) Variable costs have increased.
E) ​None of these choices are correct.

Quizplus · Accepted Answer

The margin of safety is the amount by which sales exceed the break-even point. If sales remain the same and the margin of safety increases, it means that the break-even point has decreased, i.e. the company is able to cover its fixed costs and start making a profit at a lower sales volume. This is a positive development for the company. The other options are not correct because the question specifically states that sales remain the same, so there is no reason to assume that fixed costs, variable costs, or any other factors have changed.

If Sales Remain the Same and the Margin of Safety