Which of the following statements about the safety margin is correct?
i. All else being equal, the safety margin is higher when the break even point is lower.
Ii The safety margin depends on the budgeted revenue
Iii The safety margin is unaffected by fixed cost.

Question

Quizplus · Accepted Answer

i. The safety margin, which measures how much sales can drop before a business reaches its break-even point, is indeed higher when the break-even point is lower, assuming other factors remain constant. This is because a lower break-even point means a business needs to generate less revenue to cover its costs, thus providing a larger buffer before losses occur.ii. The safety margin does depend on budgeted revenue since it's calculated based on the difference between actual or projected sales and the sales level at the break-even point. Changes in budgeted revenue directly affect the safety margin.

Which of the Following Statements About the Safety Margin Is