Margin of Safety
Accounting glossary · Understand, connect, apply
Margin of safety is the excess of actual or planned sales over break-even sales. It shows how far sales could fall before the cost-volume-profit model reports an operating loss.
Example
Planned sales are 50,000 and break-even sales are 35,000. Margin of safety is 15,000, or 30% of planned sales.
Formula and assumptions
Margin of safety percentage = (sales − break-even sales) ÷ sales × 100%
Remember the difference
Use the same basis for both amounts: units with units or revenue with revenue. A larger margin is helpful context, but depends on reliable assumptions about prices, costs and sales mix.
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Published 4 November 2026. Prepared with AI assistance; examples are fictional and simplified for learning.
Examples are simplified for learning. Where a term depends on US law, IFRS, US GAAP or a historical rule, check the context explained above and the requirements relevant to your course.
Study references: OpenStax financial accounting and managerial accounting. For reporting requirements, consult the applicable IFRS Standards or FASB guidance. US tax terms should be checked against the relevant tax-year IRS instructions.
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