ECONOMICS

Detailed explanation-1: -The given statement is true. The margin of safety means the excess units produced over and above the breakeven point. The higher the margin of safety (MOS), the lower the risk of losses.

Detailed explanation-2: -A higher margin of safety means the company has more protection from a decline in sales. It acts as a buffer so that volatile sales periods are not detrimental to the business. A low margin of safety indicates the company does not have a wide buffer and needs to make some changes.

Detailed explanation-3: -A high margin of safety indicates the soundness of business i.e., the break-even point is much below the actual sales so that even if there is a fall in sales, there will still be a profit.

Detailed explanation-4: -If the margin of safety is high, even a small decline in sales revenue may result in an operating loss.

Detailed explanation-5: -The value represented by your margin of safety is your buffer against becoming unprofitable. In the real world, the minimum margin of safety percentage to aim for generally depends on your cost structure. If your costs are largely variable, then a margin of safety percentage of 20%–25% may be acceptable.