Margin of Safety

Margin of Safety (MOS) Definition The difference between the actual sales volume. and the break-even sales volume is called the margin of safety. It represents that proportion of the current sale which determines the profit of the firm. Formula to calculate the Margin of Safety Margin of Safety = Actual sales volume – Break-even sales …

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Graphical representation of break-even analysis

Break-even chart Cost-Volume-Profit (or Break-Even) relationships can also be portrayed through the use of graphs. This method has the advantage of showing cost-volume-profit relationships over a range of sales. The graphic analysis permits managers to observe areas of profit or loss that would occur for a broad range of sales activity. The data from the …

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Contribution Margin

What is the Contribution Margin? The contribution margin (C.M.) is the amount of revenue in excess of variable costs. To cover the company’s fixed cost, this portion of the revenue is available. And after all fixed costs have been covered, this provides an operating profit. Hence contribution is a profit measure, although an incomplete one, …

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Break-Even Point

Break-even Point – Definition The break-even point is that volume of activity at which total revenue equals the sum of all variable and fixed costs. The activity can be expressed in unit or in dollar sales. This break-even is the point at which there is no profit or loss. Break-even Point is a point where …

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Contribution margin ratio

Definition of Contribution Margin Ratio The total contribution margin divided by the total sales is equal to Contribution margin ratio. It is also known as the profit-volume ratio (p/v ratio). Explanation The Contribution Margin, as we know, is the amount of revenue in excess of variable costs. Contribution margin may be expressed on per unit basis …

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Difference between actual costing and normal costing

Normal Costing: Normal costing refers to a product costing system where actual direct material, actual direct labor and applied manufacturing overhead costs are added to work in process inventory. Actual Costing: Actuar costing system refers to a product costing system where actual direct material and actual direct labor and actual manufacturing overhead costs are added …

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