CameraIcon
CameraIcon
SearchIcon
MyQuestionIcon


Question

The margin of safety may be defined as:


A
The difference between planned sales and break even point sales.
loader
B
The extent to which sales revenue exceeds fixed costs.
loader
C
The excess of planned sales over the current actual sales.
loader
D
The point at which break-even point sales are achieved.
loader

Solution

The correct option is D The difference between planned sales and break even point sales.
Margin of Safety is defined as the extra sales over and above the break even sales. This signifies the safer zone for the organization ensuring that there will be no loss to the organization.

Example: Selling Price Rs.10 P/U, No. of units sold 1000. Variable Cost Rs.4 P/U, Fixed Cost Rs.3000
 
Selling Price                  Rs. 10
Less: Variable Cost         Rs. 4
Contribution Per Unit      Rs.6

BEP= Fixed Cost/Contribution
       = Rs. 3000/Rs.6
       = 500 units i.e Rs.5000

Margin of Safety= Actual Sales - Break Even Sales
                           =Rs.10000-Rs.5000
                          =Rs.5000 or 500 units

Accountancy

Suggest Corrections
thumbs-up
 
0


similar_icon
Similar questions
View More


similar_icon
People also searched for
View More



footer-image