Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 14

What is the margin of safety, and for what is it used?

Step 1 of 2

The margin of safety is the amount by which the revenue exceeds breakeven revenue. In terms of unit margin of safety is a difference between the sales quantity and the breakeven quantity.

The breakeven point is a point where forecasted revenue matches the estimated total costs. It is the quantity of output sold at which total revenue equals total cost. It is a point where there is no profit or loss.