Which of the following statements relating to margin of safety is correct?

Question

Quizplus · Accepted Answer

Margin of safety represents the amount by which sales can decrease before incurring a loss. It shows how much the actual sales can fall before the breakeven point is reached. A higher margin of safety indicates that the business can endure a greater decline in sales and still make profits or avoid losses. Option B is incorrect because it refers to actual sales being higher than expected sales, which is unrelated to margin of safety. Option C is incorrect because it represents the difference between fixed and variable costs, which is not necessarily the same as margin of safety. Option D is incorrect because it is a vague statement that does not explain the concept of margin of safety.

Which of the Following Statements Relating to Margin of Safety