Discussion
Margin of safety can be improved by ................. .
Answer: C
Margin of safety improves with a decrease of variable cost per unit.
Margin of safety is actual sales minus break-even sales, and break-even sales are fixed cost divided by the P/V ratio. Cutting variable cost per unit raises contribution per unit and the P/V ratio, so the break-even point falls and the gap between actual and break-even sales widens.
The other three work the wrong way. Higher variable cost or a lower selling price shrinks contribution and raises the break-even point, and a fall in sales volume brings actual sales closer to break-even.
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