Managers understand that the margin of safety is the difference between:

Question

Quizplus · Accepted Answer

The margin of safety measures the difference between actual or expected sales and the sales required to break even. Therefore, the margin of safety is the difference between the budgeted revenues and the breakeven revenues. Option A is incorrect because it compares expenses instead of revenues. Option C is incorrect because it compares actual and budgeted operating income, which is not relevant to the margin of safety. Option D is incorrect because it compares actual and budgeted contribution margin, which is also not relevant to the margin of safety.

Managers Understand That the Margin of Safety Is the Difference