Question

If the margin of safety is 0, then a.the margin of safety cannot be less than or equal to 0; it must be positive. b.the company is operating at a loss. c.the company is earning a small profit. d.the company is precisely breaking even. e.the company's total variable costs are equal to its total fixed costs.

Answer 1

d.the company is precisely breaking even.

Step-by-step explanation:

Margin of safety is referred to current sales - Break even sales ratio to current sales as a percentage.

Basically it is quoted as follows:

`(Current\ sales\ -\ Break-even\ Sales)/(Current\ Sales) * 100`

Therefore, when the current sales = Break even sales then only the company will have margin of safety = 0

Thus, at 0 margin of safety the company basically is at no profit no loss situation, that is break even.