Which of the Following Statements Is True

question 68

Multiple Choice

Which of the following statements is true?

• A)The lower the margin of safety, the lower the risk of a loss if actual sales do not meet expectations.
• B)A good rule of thumb is that the margin of safety should be approximately 20%.
• C)The higher the margin of safety, the lower the risk of a loss if actual sales do not meet expectations.
• D)Firms that face highly variable demand conditions desire a lower margin of safety.
• E)None of the above statements are true.

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Definitions:

Purchasing Power

The ability of an individual or group to buy goods and services with a given unit of currency or resources.

Real Wages

Wages adjusted for inflation, reflecting the actual purchasing power of income earned from work.

Two-Income Families

Households in which both partners earn wages or salaries contributing to the family's total income.

Real Wages

The purchasing power of wages or income, taking into account the effect of inflation on buying capacity.