Asked by Carmia Mattox on Apr 24, 2024
Verified
The margin of safety is the amount that sales can drop before the company incurs a loss.
Margin Of Safety
Margin of safety is the difference between actual or projected sales and the sales level at which the business breaks even.
- Understand the calculation and significance of the margin of safety for business decision-making.
Verified Answer
JM
Jolene MaciasMay 02, 2024
Final Answer :
True
Explanation :
The margin of safety measures how much revenue can decline before a company starts incurring losses. It is calculated by subtracting the break-even point from actual sales. Therefore, if actual sales fall by the margin of safety, the company will break-even and not incur a loss.
Learning Objectives
- Understand the calculation and significance of the margin of safety for business decision-making.