The difference between actual sales and breakeven point is known as

Explanation:

Margin of safety:

• The Margin of safety is the difference between the break-even point and output is produced.
• A large margin of safety indicates that the business can earn profit even if there is a great reduction in output.
• A small margin of safety indicates that the profit will be small even if there is a small drop in output.

Margin of safety (M/S) ratio is given by,

\({\rm{Margin\;of\;safety\;ratio}}\left( {\frac{{\rm{M}}}{{\rm{S}}}} \right) = \frac{{Margin\;of\;safety}}{{Present\;sale}} = \frac{{Sales - Break\;even\;point\;sales}}{{Present\;sale}}\)

Break-even point:

• It is the point of intersection of the total cost line and total revenue line.
• There is neither profit nor loss at the break-even point.
• At the break-even point, the margin of safety ratio is 0.

At the break-even point, Sales = break-even point sales

\({\rm{Margin\;of\;safety\;ratio\;}}\left( {\frac{{\rm{M}}}{{\rm{S}}}} \right) = \frac{{Sales - Break\;even\;point\;sales}}{{Present\;sale}} = 0\)​​

Additional Information

Break-even chart:

• The break-even analysis is the study of cost-volume-profit (CVP) relationship.
• It refers to a system of determining that level of operations where the organisation neither earns profit nor suffer any loss i.e where the total cost is equal to total sales i.e the point of zero profit (Break-even point).
• In a broader sense, it refers to a system of analysis that can be used to determine probable profit at any level of activity.
• The figure below shows the break-even chart.