the margin of safety is the reduction in sales that can occur before the break-even point is reached. It measures the cushion that a particular level of sales can decline without incurring a loss. Discuss two limitations of relying on a margin of safety when predicting future sales. Is it reliable? Why or why not? Provide support for rationale.

the margin of safety is the reduction in sales that can occur before the break-even point is reached. It measures the cushion that a particular level of sales can decline without incurring a loss. Discuss two limitations of relying on a margin of safety when predicting future sales. Is it reliable? Why or why not? Provide support for rationale.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle.

Section: Chapter Questions

Problem 11RQSC

See similar textbooks

Similar questions

gross profit margin (gross profit/sales) is an important determinant of NOPAT. identify two factors that can cause gross profit margin to decline. is a a reduction in the gross profit margin always bad news? Explain.
Discuss two limitations of relying on a margin of safety when predicting future sales.
The margin of safety can be defined as the amount by which sales can decrease beforelosses are incurred by the company.TRUEFALSE
How to incease profitability if PE Ratio, EPS Ratio, and ROE cannot be calculated because of its unprofitability?
which one of the following will tend to increase the length of the credit period? Decrease in Product cost Decrease in consumer demand Decrease in collateral value Increase in credit risk Increase in product standardization
Which of the following is a disadvantage of the average rate of return method? a. fails to consider the time value of money b. includes the amount of income earned over the entire life of the proposal c. emphasizes accounting income d. difficult to use
What if the seller lacks sufficient information to be able to accurately estimate returns?
What is customer value? Choose the correct. A. Ratio between the customer's perceived benefits and the resources used to obtained these benefits. B. Excess of satisfaction over expectation. C. Post purchase dissonance D. None of the above.
Why short selling are risky than buying margin?
What is Galenics current profit margin allowing for bad debit
Relative valuation has several disadvantages. Which of the following is NOT? a. There is the potential to provide inconsistent estimates arising from using different price ratios. b.Relative valuation is affected by the market mood such as when the comps is overvalued, the resulting valuation of the object will be a lower estimate. c. When applying relative valuation, the analyst may remove nonrecurrring income and loss items such as loss from sale of a cash-generating unit; this will improve the valuation process at the expense of time required.d.When biased stock brokers prepare relative valuation reports, it is likely that they will choose a price ratio that will encourage investors to buy stocks.
Contrast the effects that LIFO vs. FIFO would have on ending inventory, net income and cash flow in a period in which prices are rising?