# Break even point and Margin of safety

Registered Posts: 7 New contributor 🐸
Hi,

Can you tell me how you work out the break even point because i have read the book but its confusing looking at the graph and also how to work out the margin of safety?

Many Thanks

• Registered Posts: 466 Dedicated contributor 🦉
Hello,

Breakeven point = Fixed Costs / Contribution per unit

Eg.

Selling Price 100.00
Variable Cost (50.00)
Contribution 50.00

Fixed Costs = £ 5,000

Breakeven point = £ 5,000 / £ 50 = 100 units

100 units x £ 100.00 = £ 10,000 (breakeven point in £)

Margin of safety (using above figures):

If budgeted Value of Sales were for example £ 12,000

Margin of Safety = £ 2,000 / £ 10,000 * 100 = 20 %
• Registered Posts: 7 New contributor 🐸
HI,

Thanks for that, i have just tried to use that method when working out task 2.3 a) in June 2009 paper but it doesnt work.`

The question is-

Selling price- 80P
Marginal cost-30P
Fixed cost- £312500

£312,500/(50p/80p)= £500,000

I though it would be -
£80p-30p = 50p312,500/0.50p=£625,000

Can you tell me where i am going wrong???

Thanks
Lucy
• Registered Posts: 466 Dedicated contributor 🦉