CAF-5 · Chapter 13 · Question 10 of 10
What does the "Margin of Safety" fundamentally indicate to management?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) The percentage or amount by which budgeted or actual sales can fall before the company begins to incur a financial loss.
Explanation
The margin of safety represents the "buffer" a business has. It is calculated as budgeted/actual sales minus break-even sales, indicating how much sales can drop before reaching the break-even point where losses start.
More Cost-Volume-Profit (CVP) Analysis MCQs
- Q2Which of the following formulas correctly calculates the Break-Even Point in terms of Sales Revenue?
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- Q4A company plans to sell its product for Rs. 53 per unit. The expected variable cost is Rs. 21 per unit, and the total fixed costs for the…
- Q5On a conventional Break-Even Chart, how is the "Total Fixed Costs" line typically drawn?
- Q6On a Profit-Volume (PV) chart, what does the y-intercept (the point where the profit line crosses the vertical axis at zero sales volume)…