Margin of safety shows how much sales exceed break-even to avoid losses

Steps:

• Identify break-even units: fixed costs divided by contribution margin per unit.
• Determine budgeted sales units: planned production or sales volume.
• Subtract break-even units from budgeted units to find excess capacity.
• This difference is the margin of safety in units, indicating risk buffer.

Why D is correct:

• Margin of safety formula is budgeted sales minus break-even sales, measuring sales cushion before losses occur.

Why the others are wrong:

• A: Contribution differences relate to profit variance, not safety margin.
• B: Actual vs. budgeted units measure volume variance, ignoring break-even.
• C: Sales unit differences track performance variance, not break-even buffer.

Final answer: D