Margin of safety means

The correct answer is: D. Difference between actual sales and Break Even sales.

Margin of safety is the amount of sales revenue that a company can lose before it starts to incur a loss. It is calculated by subtracting the break-even point from the company’s actual sales revenue.

The break-even point is the point at which a company’s total revenue equals its total costs. At this point, the company is neither making a profit nor a loss.

The margin of safety is important because it measures how much risk a company is taking. A company with a high margin of safety is less risky than a company with a low margin of safety.

Here is a brief explanation of each option:

• Option A: Difference between actual sales and total cost. This is not the margin of safety. The margin of safety is the difference between actual sales and break-even sales, not total cost.
• Option B: Difference between actual sales and variable cost. This is not the margin of safety. The margin of safety is the difference between actual sales and break-even sales, not variable cost.
• Option C: Difference between actual sales and fixed cost. This is not the margin of safety. The margin of safety is the difference between actual sales and break-even sales, not fixed cost.