Discussion
The margin of safety is the excess of actual sales over
Answer: C
Correct answer: break-even sales
The margin of safety is how far sales can fall before the firm begins to lose money:
\[ \text{margin of safety} = \text{actual sales} - \text{break-even sales} \]usually expressed as a percentage of actual sales. A narrow margin means a small downturn takes the firm into loss, which is the practical measure of how exposed it is.
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