COST ACCOUNTING
BREAK EVEN POINT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The business is operating above its break even point
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The margin of safety is negative
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The business’s total costs are higher than its total revenue
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Total revenue is lower than the business’s total variable costs
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The margin of safety is positive
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Detailed explanation-1: -A positive Margin of Safety (MOS) is when the real amount of sales exceeds Break-Even Quantity (BEQ). A positive Margin of Safety (MOS) means that the firm makes a profit.
Detailed explanation-2: -Alternatively, in accounting, the margin of safety, or safety margin, refers to the difference between actual sales and break-even sales. Managers can utilize the margin of safety to know how much sales can decrease before the company or a project becomes unprofitable.
Detailed explanation-3: -A negative margin of safety shows your business is below break even point, which means it is losing money and not earning enough to cover its own costs. And a positive margin of safety means your business has exceeded break even point and is making a profit.
Detailed explanation-4: -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.