| Definition |
The level of sales at which total revenue equals total cost; no profit, no loss. |
The amount by which actual or projected sales exceed the break-even sales. |
| Purpose |
To identify the minimum sales required to avoid losses. |
To measure risk and assess how much sales can drop before reaching break-even. |
| Formula |
Fixed Costs ÷ (Selling Price per Unit - Variable Cost per Unit) |
Actual Sales - Break-Even Sales |
| Unit |
Can be expressed in units or sales revenue. |
Expressed in currency or percentage of sales. |
| Focus |
Focuses on covering all costs. |
Focuses on the buffer above the break-even point. |
| Indicates |
Minimum level of activity to avoid loss. |
Safety cushion before losses begin. |
| Impact of High Value |
Means higher sales needed to break even; can indicate high fixed costs. |
Indicates lower risk and higher profitability. |
| Impact of Low Value |
Means break-even is achieved with fewer sales; lower risk. |
Indicates high risk, narrow cushion before losses. |
| Business Use |
Helps in pricing, budgeting, and cost planning. |
Used for risk analysis and decision-making under uncertainty. |
| Profit Indication |
At break-even, profit is zero. |
The higher the margin of safety, the higher the profit cushion. |
| Risk Analysis |
Does not directly show risk, just the threshold. |
Directly indicates financial risk tolerance. |
| Used By |
Managers, entrepreneurs, cost accountants. |
Investors, financial analysts, risk managers. |
| Decision Support |
Helps in deciding minimum output level to avoid losses. |
Helps in determining how secure the business is above the break-even level. |
| Graph Representation |
Plotted as the point where total cost and total revenue lines intersect. |
Shown as the gap between actual sales and break-even sales. |
| Example |
If fixed cost is ₹50,000, contribution per unit is ₹500, break-even is 100 units. |
If sales are 150 units and break-even is 100 units, margin of safety = 50 units. |
break-even point vs margin of safety
