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SSC Financial and Cost Accounting P-1 QUESTION #6154
Question 1

What is the correct definition of margin of safety (in dollars)?

  • The amount by which sales revenue exceeds total fixed and variable costs
  • The amount by which sales revenue exceeds total marginal costs
  • The amount by which sales revenue could fall before the break-even point is reached✔️
  • Total fixed costs divided by contribution per unit sold
Correct Answer Explanation

Option C is correct.

Margin of safety = Actual (or budgeted) sales revenue − Break-even sales revenue

It represents the buffer before the business starts making a loss.