Distinguish break even point from margin safety

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  • Nov 23rd, 2008

BEP means sales level at which total cost of the product are equal. MOS means what business sales above the BEP level sales.

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Break Even point is Total Fixed Expenses/CM Ratio or Unit. In another hand Margin of Safety is Actual Sales - Break Even point.  So you need to figure out the break even point first in order to estimate the margin of safety. The higher Margin of Safety the less sensitive the company will be to sudden revenue collapse.

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