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DragIT - Margin of safety

Click and hold on the total cost curve and drag it to see the impact of changes in cost on the margin of safety. Then have a go at the questions below.

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1
Margin of safety

As total cost increases, the margin of safety will fall.

a)
b)
Yes, that's correct. The statement is true. As total cost increases, the break-even level of output will rise and the margin of safety(the gap between current output and break-even output) will fall.No, that's not right. The statement is true. As total cost increases, the break-even level of output will rise and the margin of safety(the gap between current output and break-even output) will fall.Your answer has been saved.
Check your answer

2
Margin of safety

Select appropriate options in the paragraph below to build an appropriate description of the changes that take place to the margin of safety when costs change. (N.B. You may like to try these changes in the draggable diagram above before attempting the question.)

When total cost increases, the level of break-even output will and this will mean that the level of break-even output is now current output. As a result the margin of safety is . However, when total cost falls, the level of break-even output will and this will mean that the level of break-even output is now current output. As a result the margin of safety is .

Yes, that's correct. Well done.No, that's not right. Have another go. Try making the appropriate changes in the draggable diagram above before selecting the options.Your answer has been saved.Check your answer