Margin of safety is
Aprojected sales less break-even sales
Bbreak-even sales less projected sales
Ccontribution less fixed cost
Dfixed cost divided by the P/V ratio
Answer & Solution
Correct answer: A. projected sales less break-even sales
1. Margin of safety measures how far sales can fall before a loss starts.
2. It is projected sales less break-even sales.
3. A larger margin of safety means the business is further from its break-even point.
4. Fixed cost divided by P/V ratio is break-even sales in value, not the margin of safety.
_Source: ICAI Cost and Management Accounting Ch14 'Marginal Costing', section 14.10_
Related questions
At the break-even point,A higher contribution to sales ratio implies thatIf the margin of safety is 21.875 per cent of sales, break-even sales are what share of saFixed cost is 1,50,000 and contribution per unit is 15. Units needed to earn a profit of 2Fixed cost is 1,50,000 and contribution per unit is 15. The break-even point in units isSelling price is 30 per unit and variable cost is 15 per unit. The P/V ratio isContribution is defined asAbsorption costing values inventory at: