Which one of these statements is correct regarding the break-even output and margin of safety?
Understand the Problem
The question is asking about the implications of changes in fixed and variable costs on the break-even output and margin of safety for a product, based on a given breakeven chart.
Answer
Option A: Its break-even output falls and its margin of safety increases.
The correct statement is A: Its break-even output falls and its margin of safety increases.
Answer for screen readers
The correct statement is A: Its break-even output falls and its margin of safety increases.
More Information
A reduction in fixed costs typically lowers the break-even output, while a rise in variable costs can increase sales revenue above the break-even output, thereby increasing the margin of safety.
Tips
Remember that fixed costs significantly impact the break-even point, and changes in variable costs can affect profitability and the margin of safety.
Sources
- Break-Even Analysis vs Margin of Safety - Vintti - vintti.com
- Difference between breakeven point and margin of safety - Javatpoint - javatpoint.com
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