# unit 6 question

Registered Posts: 6,970
Can someone explain the term "Percentage margin of safety"

thanks

Vic

• Registered Posts: 254
This tells a business how much sales value can drop before the break even point is reached. This is calculated by using current output less break even output/ current output times 100.

For example item a, current output is 700 items, the break even point is 500. The formula would look like this 700-500/700 x 100 = 28.5%.

Companies can use this to compare different products, the one with the higher margin is generally favoured more, however this is only one point in the decision making.
• Registered Posts: 6,970
mikes wrote: »
This tells a business how much sales value can drop before the break even point is reached. This is calculated by using current output less break even output/ current output times 100.

For example item a, current output is 700 items, the break even point is 500. The formula would look like this 700-500/700 x 100 = 28.5%.

Companies can use this to compare different products, the one with the higher margin is generally favoured more, however this is only one point in the decision making.

Thanks mikes that makes sence :thumbup1: