ECONOMICS

Detailed explanation-1: -The margin of safety is the difference between the amount of expected profitability and the break-even point. The margin of safety formula is equal to current sales minus the breakeven point, divided by current sales.

Detailed explanation-2: -Margin of safety measures the difference between real and break-even sales. Break-even point measures the volume of sales where all costs are covered. Both figures examine risk, but break-even point only goes as far as determining where the risk level is zero.

Detailed explanation-3: -The difference between the actual output and the break-even output is known as the “margin of safety". For example, if actual output were 8, 000 units, then the margin of safety = 8, 000 units less 6, 666 units = 1, 334 units.

Detailed explanation-4: -A company’s margin of safety is the difference between its current sales and its break-even sales. The margin of safety tells the company how much they could lose in sales before the company begins to lose money, or, in other words, before the company falls below the break-even point.

Detailed explanation-5: -Purpose: Margin of safety shows the percentage that sales can drop before a business is operating at a loss. Profit simply shows how much loss or income was generated during the accounting period, irrespective of break-even point.