Margin of safety Flashcards
1
Q
What is margin of safety
A
Margin of safety = The difference between the number of forecasted sales and the businesses break even output.
2
Q
What is the formula for working out the margin f safety
A
Forecast sales - break even output
3
Q
Look at the chart
A
https://docs.google.com/document/d/1MsPdjXD8DROyLveltE7T5n2lVbPwoK3_sebOAoSc6iY/edit
4
Q
What would be an example of this
A
Assume that the business identifies that they need to sell 2000 units to break even, but they’ve also forecasted to sell 3000 units - The margin of safety would be 1000 units
