1. Defining the Margin of Safety
The Margin of Safety (MoS) is the cushion a business has between its current sales volume and its break-even point. It shows how much sales can drop before the company begins to lose money.
 
2. Equations for Margin of Safety
The Margin of Safety can be calculated and expressed in three different ways:
  • In Units: Budgeted Sales Units – Break-Even Sales Units
  • In Value ($$): Budgeted Revenue – Break-Even Revenue
  • As a Percentage:

“Margin of Safety (%)” = (“Budgeted Sales Units” − “Break-Even Sales Units”)/”Budgeted Sales Units” × 100
 
3. Anatomy of a Break-Even Chart
A break-even chart plots costs and revenues across different production levels to help managers visualize financial risks and performance trends:
 
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