If budgeted revenue is $50000 and breakeven revenue is $35000, the margin of safety is ____________?
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Answer: C. $15,000
Explanation
Subtracting breakeven revenue from budgeted revenue gives the margin of safety. This subtraction measures the buffer before sales drop into unprofitable territory. The resulting fifteen thousand dollars correctly quantifies the safety cushion. Margin of safety highlights financial vulnerability against unexpected market downturns. Higher safety margins indicate lower operational risk for the business enterprise. This metric serves as a key indicator in cost-volume-profit analysis.
Financial planners use the margin of safety to evaluate sales forecast reliability. Management monitors this buffer to ensure stability during volatile economic cycles. Creditors review safety margins when assessing commercial loan risk profiles. Option A underestimates the difference between the two revenue figures. Option B incorrectly calculates the mathematical difference of the amounts. Option D overstates the safety margin derived from the primary inputs.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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