Asked by Chelsie Bishop on Jun 01, 2024
Verified
The margin of safety is the difference between
A) contribution margin and net profit before tax.
B) budgeted contribution margin and actual contribution margin.
C) budgeted sales revenue and actual sales revenue.
D) budgeted sales revenue and break-even sales revenue.
Margin of Safety
The difference between actual or projected sales and the break-even sales, indicating the risk cushion for not incurring losses.
Contribution Margin
The amount by which a product's sales price exceeds its variable costs, indicating how much it contributes to covering fixed costs and generating profit.
- Evaluate the margin of safety and grasp its criticality.
Verified Answer
ZK
Zybrea KnightJun 06, 2024
Final Answer :
D
Explanation :
The margin of safety is the difference between the budgeted or expected sales revenue and the break-even sales revenue. It represents the amount of sales that can be lost before the business starts incurring losses. Therefore, option D is the correct choice. Option A and B do not accurately represent the margin of safety, and option C is simply the variance between budgeted and actual sales revenue.
Learning Objectives
- Evaluate the margin of safety and grasp its criticality.