Question

The margin of safety is a measure of the distance between budgeted sales and the break-even point. It can be measured in dollars, in units or as a percentage.
These statements are true.
These statements are false.
Statement one is true and statement two is false.
Statement one is false and statement two is true.

Answer 1

Answer:

The correct option is these statements are true

Explanation:

Margin of safety is the measure of the reduction in sales that needs to be recorded before a company makes no profit,invariably the difference the planned sales volume and the sales volume required to break even(makes no profit no loss).

The margin of safety can be expressed in volume,say 100 units of a product,in dollar terms ,say each product sells for $100 each,the margin of safety becomes $10,000($100*100) and can also be expressed in percentage terms depending on the way management wants it stated.