When preparing a break-even graph, what does the Margin of Safety refer to?
2019
When preparing a break-even graph, what does the Margin of Safety refer to?
- A.
Variable cost
- B.
Break-even point
- C.
Profit margin
- D.
Fixed cost
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Correct answer: C
Definition: The Margin of Safety in break-even analysis is the amount by which actual sales exceed break-even sales. It shows how much sales can fall before the business starts making a loss. Key points: a higher margin of safety means a larger cushion against sales decline and lower business risk. Formula (absolute): Margin of Safety = Actual Sales − Break-even Sales