The margin of safety is the:
A) Volume of units or revenues needed to cover fixed costs
B) Amount by which volume of units or sales can drop before an organization reaches the breakeven point
C) Amount of confidence decision makers have in a CVP analysis
D) Unrelated to operating leverage

Question

Quizplus · Accepted Answer

The margin of safety is the amount by which volume of units or sales can drop before an organization reaches the breakeven point, indicating how much cushion a business has in case of unexpected setbacks or changes in sales patterns. Option A defines the concept of the breakeven point. Option C refers to subjective decision-making factors, while option D is incorrect because the margin of safety is directly related to operating leverage.

The Margin of Safety Is The