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John Moffat.
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Natasha1996
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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?
John Moffat
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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?
Natasha1996
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