d.    What does a Margin of Safety of $500,000 indicate? What does a Margin of Safety Ratio of 25% indicate? Which is more useful?   Why? Solution Hi, Please find the correct answer as follows: What does a Margin of Safety of $500,000 indicate: Margin of safety is used in break-even analysis to indicate the amount of sales that are above the break-even point Here, the 25% MOS means that company\'s sales could decrease by $500000 before the company will become unprofitable. -------------- What does a Margin of Safety Ratio of 25% indicate Similarly MOS of 25% indicates that company\'s sales could decrease by 25% of sales before the company will become unprofitable ---------- Margin of Safety Ratio of 25% is more useful because it gives us the idea about the exact picture of what percentage of sales is required brfore the company goes unprofitable .

1. d.   What does a Margin of Safety of $500,000 indicate?
What does a Margin of Safety Ratio of 25% indicate?
Which is more useful?  Why?
Solution
Hi,
Please find the correct answer as follows:
What does a Margin of Safety of $500,000 indicate:
Margin of safety is used in break-even analysis to indicate the amount of sales that are above
the break-even point Here, the 25% MOS means that company's sales could decrease by
$500000 before the company will become unprofitable.
--------------
What does a Margin of Safety Ratio of 25% indicate
Similarly MOS of 25% indicates that company's sales could decrease by 25% of sales before
the company will become unprofitable
----------
Margin of Safety Ratio of 25% is more useful because it gives us the idea about the exact picture
of what percentage of sales is required brfore the company goes unprofitable