Measures to Increase Margin of Safety

To increase margin of safety, which of the following measures can be taken?

Correct Answer: All of the above

All three strategies can effectively increase the margin of safety: increase sales price, increase output, and reduce fixed and variable costs.

How Each Strategy Works

• Increase sales price: Each unit sold generates more revenue → Total Revenue line steepens → Break-even point reached at lower output → Margin of safety increases.
• Increase output: More units produced and sold → Total Revenue grows faster → Gap between actual sales and break-even point widens.
• Reduce fixed costs: Break-even point shifts lower (less total cost at any output level) → Existing sales exceed break-even by a greater amount.
• Reduce variable costs: Total Cost line flattens → Profit area expands → Margin of safety increases.