[amp_mcq option1=”Break Even Point” option2=”Variable Cost” option3=”Fixed Cost” option4=”Margin of Safety E. Angle of Incidence” correct=”option4″]<\/p>\n
The correct answer is D. Margin of Safety<\/strong>.<\/p>\n The margin of safety is the amount by which actual sales can fall below break-even sales before a company incurs a loss. It is calculated as a percentage of sales or as a dollar amount.<\/p>\n The P\/V ratio is the contribution margin ratio, which is the percentage of sales that is available to cover fixed costs and provide a profit. It is calculated as follows:<\/p>\n P\/V ratio = (Sales – Variable costs) \/ Sales<\/p>\n The profit is the amount of money that a company makes after all of its costs have been paid. It is calculated as follows:<\/p>\n Profit = Sales – Total costs<\/p>\n Therefore, the equation $\\frac{{{\\text{Profit}}}}{{{\\text{P\/V Ratio}}}} = .\\,.\\,.\\,.\\,.\\,.\\,.$ can be rewritten as follows:<\/p>\n $\\frac{{{\\text{Sales – Total costs}}}}{{{\\text{Contribution margin ratio}}}} = .\\,.\\,.\\,.\\,.\\,.\\,.$<\/p>\n This equation can be rearranged to solve for the margin of safety as follows:<\/p>\n Margin of safety = Sales – (Total costs \/ Contribution margin ratio)<\/p>\n The margin of safety is an important measure of a company’s financial health. It indicates how much sales can decline before the company starts to lose money. A high margin of safety indicates that a company is well-positioned to withstand changes in the economy or in its industry.<\/p>\n The other options are incorrect because they are not measures of a company’s financial health.<\/p>\n [amp_mcq option1=”Break Even Point” option2=”Variable Cost” option3=”Fixed Cost” option4=”Margin of Safety E. Angle of Incidence” correct=”option4″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[85],"tags":[],"class_list":["post-50806","post","type-post","status-publish","format-standard","hentry","category-accounting","no-featured-image-padding"],"yoast_head":"\n\n