Wednesday 13 June 2018

Margin Of Safety

Margin Of Safety

The Margin of safety is a tool that can provide information about how large the volume of sales or budgeted results of certain sales could be down so that the company does not suffer any loss. Nargin numbers of safety will provide clues as to the amount of the maximum decrease in sales volume of planned or budgeted at once did not result in losses.

By knowing the margin of safety will benefit for the progress of the company in this case nargin of safety for the company which is the requirement for management to know the limits of security from the sales conditions and can also be Note how that must be produced in order for sales approaching point break even point.


The margin of safety is a number that indicates the distance between the planned sales with sales break even point.

It can be inferred that the Sense meant by the margin of safety is the limit distance security where the amount of sales exceeds nor loss.
Understanding the limits of break even point (offset) is break even a situation where an undertaking does not suffer a loss. In other words an attempt is said to break even when the amount of revenue equal to the cost, or if fixed costs only.

The break even analysis is a way or for the techniques used by someone the officer/Manager of the company to find out on the volume (amount) of production and sales volumes on the some of the companies in question did not suffer losses and do not earn a profit.

Break even point is a situation where the number of sales is equal to the amount of the costs or the State of which the company does not earn a profit or not suffer losses, the company's profit or equal to zero.

A company is said to be break even point in his attempts at one period is the amount of the fee by the number of the sales results are the same anyway. It suffered no harm and do not earn a profit. The company's activity appears to be no results achieved due to the expected profits by companies do not exist and there are also losers.


The analysis of the break even is a technical analysis to study the relationship of costs, profit and volume of activities.

Therefore, the analysis examines the relationship between costs, profit volume of activity, then the analysis is also called cost-profit analysis (C.P.Y. Analysis). In planning profits, break even analysis is a non-profit Planning Approach based on the relationship between the cost (cost) and the sales income (revenue).

To implement a breakeven or break even point (BEP) that some assumptions (assumption), as follows:

  1. Costs in the company can be divided in the variable costs and the fixed costs.
  2. The magnitude of the variable costs are proportional with the changeable in the totality of production volume/sales. Means that the variable cost per unit varies due to changes in the volume of activity.
  3. The magnitude of fixed costs in totality does not change although there are changes in the volume/sales. Means that the fixed costs per unit varies due to changes in the volume of activity.
  4. The selling price per unit not changeable during the period analyzed.
  5. When the company produced more than one kind of product, then consideration in generating sales between each product or "the mix sales" is a fixed constant.

Break even Analysis is very important for the direction of companies, as follows:

  1. The base or Foundation in planning for the advantage level in gain (profit planning)
  2. The basis for determining the level of production that are beneficial in the sense that on a certain level of production the company will earn a profit on top of BEP production levels and prevent/lower sales from a BEP.
  3. The basis for controlling the operations that are currently selling (control). 
Thus it can be said that the break even analysis is an analysis tool that is very useful and important to know by company managers, because by doing so may indicate the reasons for the favorable circumstances and disadvantage.

The purpose of analysis break even this is important to know the profit or loss experienced by the company. In dealing with declining turnover, breakeven is actually a sign of light is a danger to the company. This means that on sale for the company's breakeven point experience advantage.

And if the sales turnover decreased continuously until under break-even then companies will suffer losses. Furthermore if the company doesn't raise turnover sales above break-even for a long period of time, then it is likely the company will be wound up. Therefore, the company should strive to maintain so that turnover remained above break even.

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