Margin of safety as sales buffer to break-even

Steps:

• Define margin of safety: excess of actual sales over break-even sales.
• Calculate implication: reduction by this amount equals break-even sales.
• Apply to question: $10,000 drop in sales reaches break-even point.
• Confirm: no profit or loss at that level, just zero profit.

Why B is correct:

• By definition, margin of safety = actual sales revenue - break-even sales revenue; reducing sales by this amount hits break-even, where profit is zero.

Why the others are wrong:

• A: Margin of safety concerns sales reduction, not profit reduction, to reach break-even.
• C: Reduction by margin of safety reaches break-even (zero profit), not a loss.
• D: At break-even after $10,000 sales drop, profit is zero, not$10,000.

Final answer: B