COST ACCOUNTING
COST VOLUME PROFIT ANALYSIS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Company can predict how their decision will affect sales, cost and net income
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Company can take the necessary precautions to avoid any drop in sales
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Company can enhances a manager’s ability to make economic decision
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Company can improve their performance
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Detailed explanation-1: -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-2: -The term “margin of safety” is used in multiple contexts. In accounting, the margin of safety is the gap between present or estimated future sales and the break-even point. This is the minimum sales level needed to prevent loss from selling the product.
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.
Detailed explanation-4: -The main benefit of using margin of safety is that it gives investors a buffer against potential losses. If an asset’s market price falls below its intrinsic value, an investor will still be able to sell it at a profit if they had previously purchased it using a margin of safety.