Margin of safety is the amount of sales that exceed the break-even point or simply the amount of sales a company can lose before it actually starts to lose money or stops making a profit.

A drop in sales greater than margin of safety will cause net loss for the period.

The higher the margin of safety, the more the company can withstand fluctuations in sales.

**Formula to calculate margin of safety.**

Budgeted sales may be used instead of actual sales to measure the degree of risk of budgeted figures.

**Example:**

In a certain month the break sales were $ 50,000, the actual sales value was $ 75,000. Determine the margin of safety.

Therefore, the margin of safety is $ 25,000.