Question

What is Eastwick's margin of safety if fixed costs total $340,000?

a) $340,000
b) Cannot be determined
c) Insufficient information
d) Not applicable

Answer 1

The margin of safety cannot be determined with the information provided, as it requires total sales and variable costs as well as fixed costs to calculate.

Step-by-step explanation:

The margin of safety is a business concept that refers to the difference between actual or projected sales and the break-even point. It represents the amount by which sales can drop before a business reaches its break-even point (where total revenues equal total costs, and there is neither profit nor loss).

To calculate the margin of safety, one must know not only the fixed costs but also the total sales and variable costs. With only the fixed costs provided, there is insufficient information to calculate Eastwick's margin of safety. Therefore, the correct answer to this question is c) Insufficient information.