What does the margin of safety in units measure?
A) how far fixed costs can rise before an operating loss occurs
B) how far variable costs can rise before an operating loss occurs
C) how far total costs can rise before an operating loss occurs
D) how far sales can fall before an operating loss occurs

Question

Quizplus · Accepted Answer

The margin of safety in units measures how far sales can fall before an operating loss occurs. It provides an indication of the level of sales below which a company would be operating at a loss. This is important for companies to know as it helps them plan and set targets for sales and expenses. Option A, B, and C are incorrect because they measure the impact of cost changes on operating profit rather than the impact of sales changes.

What Does the Margin of Safety in Units Measure