Calculating the Margin of Safety (MOS) Measure Will Help a Firm

question 82

Multiple Choice

Calculating the margin of safety (MOS) measure will help a firm answer which of the following questions?

• A) Will we break even?
• B) Are we using our debt wisely?
• C) How much will profits change if sales change?
• D) How much profit will we earn?
• E) How much revenue can we lose before we drop below the breakeven point?

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Definitions:

Direct Materials

Components that are directly associated with the creation of a product and form a crucial part of the completed item.

Materials Quantity Variance

The difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials.

Standard Quantity

The predetermined or budgeted amount of materials expected to be used in the production of a product, based on efficiency and productivity standards.

Variable Overhead Efficiency Variance

The difference between the actual hours taken to produce a good and the standard hours expected, multiplied by the variable overhead rate.