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Q20-23RQ

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 1120

Short Answer

What is the margin of safety? What are the three ways it can be expressed?

Answer

The margin of safety is a cushion between profit and loss.

See the step by step solution

Step by Step Solution

Step 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.

Step 2: What are the three ways it can be expressed?

  1. Margin of safety in units
  2. Margin of safety in dollars
  3. Margin of safety ratio

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