What is the Margin of Safety?

Managers often like to know how close projected sales are to the break-even point.

The excess of projected sales over the break-even point is called the margin of safety. 

The margin of safety represents the amount by which sales can fall before the company incurs a loss.

The calculation is:

Margin of safety (in units) = Projected sales (in units) − Break-even sales (in units)

The margin of safety can also be stated in sales dollars.

Margin of safety (in sales $) = Projected sales (in sales $) − Break-even sales (in sales $)

Related Topics

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• Assign Direct Material and Direct Labor to Job
• Assign Manufacturing Overhead Costs to Job
• Assign Overhead Costs to Products
• Plantwide Cost Allocation
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• Activity-Based Costing
• Weighted-Average Cost of Products
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• Fixed, Variable, and Mixed Cost Estimations
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• Absorption Costing vs Variable Costing
• Differential Analysis and Decisions
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