A Key Reason for Management to Build in a Margin

question 12

Multiple Choice

A key reason for management to build in a margin of safety in its projections is

• A)management can assess if its targets are reasonable in order to cover fixed costs.
• B)if sales do not reach the targeted number, management will not suffer the consequences.
• C)variable costs may fluctuate and this will affect the break-even calculation.
• D)it will show the operating profit if sales are not as expected.

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Definitions:

Downward Sloping

Describes a line on a graph that represents a decrease in one variable in response to an increase in another, commonly used in economics to depict demand curves.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price in a given period.

Price

The payment magnitude expected, called for, or compensated in exchange for something.

Law of Demand

A principle stating that all else being equal, as the price of a good or service increases, the quantity demanded decreases, and vice versa.