COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The amount by which the actual output of a business is greater than its break-even output.
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The amount of safety involved in producing enough sales revenue to cover total costs
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The amount by which the break-even quantity of a business is greater than its actual output.
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The amount of sales needed to cover all the costs of the business.
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Detailed explanation-1: -What is Margin of Safety? The margin of safety is the difference between the amount of expected profitability and the break-even point. The margin of safety formula is equal to current sales minus the breakeven point, divided by current sales.
Detailed explanation-2: -The margin of safety is the difference between actual sales and break-even sales, while the degree of operating leverage (DOL) shows how a company’s operating income changes after a percentage change in its sales.
Detailed explanation-3: -Definition of Margin of Safety In break-even analysis, the term margin of safety indicates the amount of sales that are above the break-even point. In other words, the margin of safety indicates the amount by which a company’s sales could decrease before the company will have no profit.