20

What does the margin of safety measure?

How far prices can be changed before the CVP analysis is no longer valid.

How much sales can drop before the firm has an operating loss.

How far fixed costs can drop before the firm has an operating loss.

How far variable costs can rise before the firm has an operating loss.

Question 21

Needles, Inc. was evaluating its margin of safety. Which one of the following is true?

The break-even point is not relevant.

The higher the ratio, the greater the margin of safety.

The higher the dollar amount, the lower the margin of safety.

The higher the ratio, the lower the fixed costs.

Question 22

Marigold, Inc. calculated how many units it needed in order to earn net income totalling $67800 for the month. What calculation did Marigold perform?

[Variable costs +($67800/1-tax rate)] contribution margin ratio

[Fixed costs + ($67800/1+tax rate)] contribution margin ratio

[Fixed costs + ($67800/1-tax rate)] contribution margin per unit

[Variable costs + ($67800/tax rate)] contribution margin per unit