Margin of safety is the difference between the actual sales and sales at break-even point. Sales beyond break-even volume bring in profits. Such sales represent a margin of safety. Margin of safety is calculated as follows:<\/p>\n\n\n\n
Margin of safety = Total sales \u2013 Break even sales<\/strong><\/p>\n\n\n\n Margin of safety can also be calculated with the help of P\/V ratio i.e.<\/p>\n\n\n\n Margin of safety = Profit \/ P\/V Ratio<\/strong><\/p>\n\n\n\n Margin of safety can also be expressed as percentage of sales<\/p>\n\n\n\n i.e. (Margin of safety) \/ Total sales x 100<\/p>\n\n\n\n It is important that there should be reasonable margin of safety; otherwise, a reduced level of activity may prove disastrous. The soundness of a business is gauged by the size of the margin of safety. A low margin of safety usually indicates high fixed overheads so that profits are not made until there is a high level of activity to absorb fixed costs.<\/p>\n\n\n\n A high margin of safety shows that break-even point is much below the actual sales, so that even if there is a fall in sales, there will still be a point. A low margin of safety is accompanied by high fixed costs, so action is called for reducing the fixed costs or increasing sales volume.<\/p>\n\n\n\n The margin of safety may be improved by taking the following steps:<\/p>\n\n\n\n Margin of safety is the difference between the actual sales and sales at break-even point. Sales beyond break-even volume bring in profits. Such sales represent a margin of safety. Margin of safety is calculated as follows: Margin of safety = Total sales \u2013 Break even sales Margin of safety can also be calculated with the…<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-107225","page","type-page","status-publish","hentry"],"acf":[],"yoast_head":"\n