Page 306 - SBL Integrated Workbook STUDENT 2018

Chapter 23

3.2 The margin of safety

This is the point at which anticipated sales can fall below budget before a business
makes a loss.

units = Total budgeted sales – Break-even point

Or

Total budgeted sales – Break-even point
as a % of budgeted sales =
Total budget sale

3.3 Key limitations

 Assumes a constant selling price

 Ignores (dis)economies of scale

 Difficult to cope with stepped fixed costs

 Only relevant in the short term.

Illustrations and further practice

Now try TYU question 3.

300