Margin of Safety Expressions and Computations

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Questions and Answers

What is the break-even point in units?

  • 10,000 units
  • 5,000 units (correct)
  • 3,000 units
  • P1,000,000

What is the break-even point in pesos?

  • P400,000
  • P1,000,000 (correct)
  • P1,200,000
  • P600,000

What is the unit contribution margin?

  • 40%
  • P80 (correct)
  • P200
  • P120

What is the margin of safety in units?

<p>3,000 units (C)</p> Signup and view all the answers

What is the margin of safety in pesos?

<p>P600,000 (D)</p> Signup and view all the answers

What is the margin of safety rate?

<p>37.50% (A)</p> Signup and view all the answers

What is the primary purpose of profit planning according to the text?

<p>To anticipate profit under varying conditions (A)</p> Signup and view all the answers

Which costing system is preferred for profit planning according to the text?

<p>Variable costing (A)</p> Signup and view all the answers

What is the relationship between contribution margin and fixed costs according to the text?

<p>Contribution margin is used to cover fixed costs and generate profit (A)</p> Signup and view all the answers

How does the variable costing system determine profit according to the text?

<p>Profit = Contribution Margin - Fixed Costs (D)</p> Signup and view all the answers

What is the relationship between sales volume and variable costs according to the text?

<p>Variable costs change directly in relation to changes in sales volume (D)</p> Signup and view all the answers

What is the margin of safety and how is it related to profit according to the text?

<p>The text does not mention the margin of safety or its relation to profit (A)</p> Signup and view all the answers

What does the Margin of Safety Ratio (MSR) indicate?

<p>The proportion of margin of safety over budgeted sales (D)</p> Signup and view all the answers

What is the relationship between profit and the margin of safety?

<p>Profit is directly related to the amount of margin of safety (B)</p> Signup and view all the answers

What does the breakeven point represent in relation to sales volume?

<p>The point at which fixed and variable costs are covered by sales revenue (D)</p> Signup and view all the answers

How is the unit contribution margin calculated?

<p>(Selling price - Variable cost) / Number of units sold (C)</p> Signup and view all the answers

What does the Margin of Safety indicate about a company's operations?

<p>The amount above the break-even point that sales exceed (B)</p> Signup and view all the answers

How is the Margin of Safety Ratio (MSR) calculated?

<p>(Margin of Safety / Budgeted Sales) x 100 (C)</p> Signup and view all the answers

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