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MARGIN OF SAFETY

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difference between the actual level of sales and BREAK-EVEN SALES. It is the amount by which sales revenue may drop before losses begin and is often expressed as a percentage of budgeted sales:

 

Margin of Safety = (Budgeted  sales - Break Even sales ) / Budgeted sales

 

The margin of safety is often used as a measure of OPERATING RISK. The larger the ratio, the safer the situation is since there is less risk of reaching the break-even point.