Which Statement Relating to Margin of Safety Is True

question 31

Multiple Choice

Which statement relating to margin of safety is true?

• A) It is the difference between fixed and variable costs at a given level of production.
• B) It is the excess of actual sales over expected sales.
• C) It indicates the amount of goods or services which can be safely produced by the business.
• D) It is the amount by which sales can decrease before a loss occurs.

---

Definitions:

Cash Flow

The net amount of cash being transferred into and out of a business, considered important for assessing liquidity, flexibility, and overall financial health.

Creditors

Individuals or institutions that lend money or extend credit, with the expectation of being repaid.

Operating Cash Flow

A measure of the amount of cash generated by a company's normal business operations over a period of time.

Retained Earnings

Retained earnings represent the portion of a company's profit that is retained within the business rather than distributed to shareholders as dividends, often used for reinvestment.