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:

Discount Rate

The interest rate used to discount future cash flows of a financial instrument to obtain the present value.

Purchased Goodwill

An intangible asset that arises when a company acquires another business for more than the fair value of its net identifiable assets at the acquisition date.

Market Value

The existing rate at which an asset or service is offered for buy or sell within the marketplace.

Amortize Intangible Assets

The process of systematically reducing the recorded cost of intangible assets over their useful life or legal life, whichever is shorter.