![]() Required: Calculate break even point and margin of safety for Noor enterprise using above data. There was no opening and closing finished goods inventory in stock. Total fixed expenses for the month: $15,000.The Noor enterprise, a single product company, provides you the following data for the Month of June 2015. MOS percentage = (MOS/Actual or budgeted sales) × 100 Examples Example 1 MOS is also expressed in the form of ratio or percentage as follows: Margin of safety = Actual or budgeted sales – Sales required to break-even The formula or equation of MOS is given below: Generally, the higher the MOS, the better it is. In such situations, it is advisable to use full year data in computations.Ī higher margin of safety reduces the risk of business losses. However, if significant seasonal variations in sales volume are involved, then monthly or quarterly computations would not make sense. The MOS can be computed for a month, a quarter or full year period. It is an important number for any business because it tells management how much reduction in revenue will result in break-even. Margin of safety is the portion of sales revenue that generates profit for the business because the sales volume achieved up to break-even point can just cover the total variable and fixed cost and does not bring any profit. The MOS concept can be used for a single product or a product line. For example, if actual sales for the month of January 2022 are $250,000 and the break-even sales are $150,000, the difference of $100,000 is the margin of safety. In other words, all sales revenue that a company collects over and above its break-even point represents the MOS. Margin of safety (MOS) is the difference between actual sales and break even sales.
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