Margin of safety
The margin of safety is the excess of actual or planned sales over break-even sales on the same basis. Express it in units, revenue or as a percentage of the relevant sales level. It indicates how far sales can fall before the model reaches a loss, but depends on the assumed prices, costs and mix remaining valid. A sales figure already below break-even gives a negative margin rather than protection.
Worked example
Planned sales are 5,000 units and break-even is 4,000. Margin of safety is 1,000 units, or 1,000 ÷ 5,000 × 100 = 20% of planned sales.
Common mistake
Use actual or planned sales, not break-even sales, as the usual denominator for the safety percentage.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Direct | September 2026–June 2027 |
