Question

Which of the following shows how far a company's actual sales and/or units are above the break-even point?

a) Profit margin
b) Contribution margin
c) Margin of safety
d) Operating income

Answer 1

The margin of safety shows how far a company's actual sales and/or units are above the break-even point. The correct answer is: c) Margin of safety.

Step-by-step explanation:

The correct answer is: c) Margin of safety

The margin of safety shows how far a company's actual sales and/or units are above the break-even point. It represents the cushion or buffer that the company has before it starts incurring losses. It is calculated by subtracting the break-even point from the actual sales or units.

For example, if a company's break-even point is 100 units and its actual sales are 150 units, then the margin of safety would be 50 units (150 - 100 = 50).