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Margin Of Safety In Marginal Costing

FR Prashanth Reddy
05/03/2018 0 0

Margin of Safety (MOS) is the sale level which exceeds Break Even point [BEP] i.e. it is the level at which an entity’s output/sales level can fall before a business reaches its breakeven point.

It is useful to determine financial soundness of business enterprise. If margin of safety is high, then the financial position of the enterprise is sound.

MOS in terms of Formula
1. Rupees Profit/PV Ratio
2. Units Profit/Contribution per unit
3. % MOS Sales/Actual Sales (or) Profit/Contribution

Note: If total capacity = actual capacity, then “MOS = 1 – Break Even Point (BEP).”

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