Q20-23RQ
Question
What is the margin of safety? What are the three ways it can be expressed?
Step-by-Step Solution
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Answer
The margin of safety is a cushion between profit and loss.
1Step 1: Meaning of margin of safety
The expected sales beyond breakeven sales is known as margin of safety. As a result, the margin of safety is the amount sales can drop before the company suffers an operating loss. It is like a cushion between profit and loss.
2Step 2: What are the three ways it can be expressed?
- Margin of safety in units
- Margin of safety in dollars
- Margin of safety ratio
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