Question

mapsThe margin of safety is: Multiple Choice the excess of budgeted net operating income over actual net operating income. the excess of budgeted or actual sales over budgeted or actual fixed expenses. the excess of budgeted or actual sales over budgeted or actual variable expenses. the excess of budgeted or actual sales over the break-even volume of sales.

Answer 1

Answer:

The excess of budgeted or actual sales over the break-even volume of sales.

Explanation:

The margin of safety is a measure in the break-even analysis that calculates either in units or amount terms the safe region for a business over break even point where there is no profit or no loss. This tells us how much the sales can fall before the company reaches break even.

For example, A company has 10000 units of budgeted sale while its break even point is at 8000 units. Thus, the margin of safety for such a company would be,

• 10000 - 8000 = 2000 units

This means that the company is selling 2000 units in excess of its break-even quantity and that the sales can fall by 2000 units before the company reaches a point where it is earning no profit or no loss(break even).