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1) Is it true that Breakeven are units that cover the fixed costs of the company which means that over the breakeven units any sold will be a profit because the company has covered its fixed costs and over breakeven units we will be making contribution?
2) I have read the definition of the Margin of Safety but unfortunately, I could not understand its meaning could you please tell me in other words for does it say?
3) Contribution to Sales ratio (C/S ratio) is used to find out the revenue earned for Breakeven units and Target Profit?
1. Yes, that is true.
2.The company will have budgeted their sales and will be expecting there to be a profit. However the budgeted sales might be wrong and the margin of safety is looking at how much it can be wrong by before the company makes a loss.
3. Yes (although it is not the only way – it depends on the information given in the question).
Have you watched my free lectures on this?
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