Margin of safety, Cost Accounting

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Margin of safety

Measures the sensitivity of budgeted sales volume compared with break-even sales volume. The difference between level of sales activity achieved and level of sales activity required to break-even in absolute or percentage terms.

Margin of safety (units)= Budgeted sales volume less Break-even sales volume

Margin of safety (%)= (Budgeted sales less Break-even sales volume/ Budgeted sales volume) x 100 Number of units sold to achieve a target profit= (Fixed cost + Target profit)/Contribution per unit


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