Process Operations and Maintenance Management 10

The margin of safety indicates

• How much sales can drop before a loss occurs

• The percentage of fixed costs covered by sales

• The portion of sales that is profit

Which action will increase the margin of safety?

• Increasing fixed costs

• Reducing selling price per unit

• Increasing total sales

When fixed costs increase, but the contribution margin per unit remains constant, the company must:

• Sell fewer units to break even

• Sell more units to break even

• Maintain the same sales level

When a company increases its selling price per unit, assuming all else constant, the break-even point will:

• Increase

• Decrease

• Stay the same

The contribution margin is calculated as:

• Sales – Fixed Costs

• Sales – Variable Costs

• Sales – Total Costs