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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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If the margin of safety is 0, then

  1. a. the company is precisely breaking even.
  2. b. the company is operating at a loss.
  3. c. the company is earning a small profit.
  4. d. the margin of safety cannot be less than or equal to 0; it must be positive.
  5. e. None of these.

To determine

Identify the condition of the company, if margin of safety is 0.

Explanation

Margin of Safety:

Margin of safety refers to the sales dollar or unit that is above or below the break-even point. Margin of safety is calculated by subtracting the amount of break-even sales from the actual sales.

a.

The company is at break-even point, when the margin of safety is equal to zero. Margin of safety shows the gap between the break-even point and the actual position of the company. So, if margin of safety is zero, then the company is precisely breaking even. Hence, option a is correct.

b...

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