Margin of safety: how far sales can fall
The margin of safety is the gap between planned sales and break-even sales. Work it out in units, in pounds and as a percentage.
Task 1The gap above break-even3 questions
The margin of safety is how far sales can fall short of the budget before the business makes a loss.
In units, it is budgeted sales less break-even sales. Multiply it by the selling price to show it as sales revenue.
Larkfield budgets to sell 2,000 candles in June at £15 each. Its break-even point is 1,500 candles.
Task 2As a percentage of budgeted sales3 questions
Task 3A quieter month3 questions