Question

The difference between the current sales revenue and the sales at the break-even point is called the:a. price factor b. operating leverage c. contribution margin d. margin of safety

Answer 1

Answer:

d. margin of safety

Explanation:

The margin of safety is the difference between the recorded sales and break-even sales. It is used to indicate the level by which sales can decrease before a project becomes unprofitable. The formula for calculating the margin of safety is actual sales minus break-even point divided by the actual sales.

The margin of safety is also referred to as a safety margin. It can be calculated either in units or dollar value. Managers and investors set the size of the margin of safety, depending on their preference and type of investment.