Page 5 - BE Theory Note
P. 5
Margin of Safety
When a business is aiming to sell a certain number of units then the difference
between the breakeven point and the sales level achieved is know as the margin of
safety
Example – if this business sells 400 units and the break-even point in units is 200 then
the margin of safety in units is 200
Margin of safety (units) = Sales Level – Break-even Level
400 – 200 = 200 units
The margin of safety in sales revenue is £20,000
Margin of safety (sales revenue) = Sales Level – Break-even
£40,000 - £20,000 = £20,000
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