Section 4 of 11
Margin of Safety — how far actual sales can fall before reaching break-even
| Measure | Formula |
|---|---|
| In units | Actual sales units − BEP units |
| In £ | Margin of safety units × Selling price |
| As % | (Margin of safety units ÷ Actual sales units) × 100 |
Target Profit — units needed to achieve a specific profit level
Units = (Fixed Costs + Target Profit) ÷ Contribution per Unit
Contribution/Sales (C/S) Ratio — also called the Profit/Volume (P/V) ratio
| Use | Formula |
|---|---|
| C/S ratio | Contribution per unit ÷ Selling price per unit |
| BEP in £ | Fixed Costs ÷ C/S Ratio |
| Target profit in £ | (Fixed Costs + Target Profit) ÷ C/S Ratio |
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