1. Which of the following statements regarding the margin of safety is not true?

A. The margin of safety is the mix between fixed and variable costs.

B. The margin of safety indicates how much revenue can decrease before reaching the break-even point.

C. A small margin of safety should motivate managers to reduce costs and increase sales to avoid potential losses.

D. The margin of safety in units is equal to the actual or estimated units of activity minus units at break-even point.

2. The break-even number of units equals fixed costs divided by:

A. selling price per unit.

B. contribution margin per unit.

C. total contribution margin.

D. variable cost per unit.

3. Which of the following statements is correct with regards to the underlying assumptions of CVP analysis?

A. A step up to the next relevant range of activity may incur an increase in fixed costs.

B. All costs can be classified as either fixed or variable.

C. The sales mix between multiple products is always the same.

D. All the statements listed are correct.