Break Even point & margin of saftey HELP!!!
cyber_jules
Registered Posts: 5 Regular contributor ⭐ ? ⭐
I need some help with Margin of saftey and break even points:
How do I calculate
Break even sales
Margin of saftey
Margin of saftey in %
I am very confused about the way it is calculated so please could I have a break down of each step to show what is calculated and how!
How do I calculate
Break even sales
Margin of saftey
Margin of saftey in %
I am very confused about the way it is calculated so please could I have a break down of each step to show what is calculated and how!
0
Comments

Break Even= Fixed Cost/ Contribution
Margin of safety is the total  break even0 
To work out Breakeven in sales value you will need to understand PV ratio or CS ratio. They are both same but called different ratio.
Then take FC and divide it by CS ratio to get BEP in sales Value (£)
CS ratio = CONTRIBUTION DIVIDE BY SALES times 100
therefore if Fixed Costs = £75,000
and Sales = £500,000
and Variable Cost (Cost of sales) = £200,000
to work out contribution = (500,000  200,000)= 300,000
therefore CS ratio= contribution divide by sales = 300,000 divide by 500,000 times 100 equals 60%
BEP in sales = 75,000 divide by 60% = £125,000
Your MARGIN OF SAFETY is the difference between your current activity ( current sales) and BEP in sales
therefore MARGIN OF SAFETY = £500,000 LESS £125,000 = £ 375,000. You can afford the sales to drop by £375,000 before you start to make a loss.
MARGIN OF SAFETY IN % = £375,000 divide by £500,000 times 100 = 75%
You can afford the sales to drop by 75% before you start to make a loss.0 
Thankyou for that  it all makes sense now :001_smile:0
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