Margin of safety

Margin of safety measures how far actual or budgeted sales sit above the break-even point. It represents the cushion that must be eroded before operations slide into a loss.

Also known asMOS

ByHoang TruongUpdated June 30, 2026

FrameworkCost-volume-profit (CVP) analysis

See it move

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The infographic is a split bar representing budgeted sales of €280,000 (7,000 units × €40) divided into two portions: break-even sales of €160,000 (4,000 units) and a margin of safety of €120,000. The margin of safety, equal to 42.9 per cent of budgeted sales, is the cushion of revenue above break-even that must be lost entirely before the business begins to record a loss. The larger the margin of safety, the more resilient the firm is to a shortfall in sales volume.

Where it fits

SubjectCost AccountingCoreTopicCost-Volume-Profit AnalysisCore

The formula

LaTeX

\text{MOS} = Q_{\text{budget}} - Q_{\text{BEP}}

Variables

$Q_{b} u d g e t$: Budgeted (or actual) sales volume (units)
$Q_{B} E P$: Break-even sales volume (units)

Also expressed in revenue (€) by multiplying the unit margin by the selling price per unit.

LaTeX

\text{MOS\%} = \frac{\text{Budgeted sales} - \text{Break-even sales}}{\text{Budgeted sales}} \times 100

Variables

$B u d g e t e d s a l es$: Planned revenue for the period (€)
$B r e ak - e v e n s a l es$: Revenue at which operating profit equals zero (€)

A higher percentage indicates a wider buffer before the business reaches a loss.

Check yourself

PracticeCORE

A company budgets sales of 9,000 units at €50 each. Its break-even point is 6,300 units. What is the margin of safety expressed as a percentage of budgeted sales?

Select an answer to check your understanding.