# Margin of Safety (MOS)
## Concept
Once the Break-Even Point (BEP) is reached, the firm has fully recovered its costs. Margin of Safety measures the cushion of sales beyond the break-even level — i.e., the portion of sales that actually generates profit.
A high MOS indicates a financially healthy business — sales can drop substantially before the firm starts incurring losses.
## Formulas
In units:
$$\text{MOS (units)} = \text{Actual units sold} - \text{Break-even units}$$
In sales value:
$$\text{MOS (₹)} = \text{Actual sales} - \text{Break-even sales}$$
Profit-based shortcuts:
$$\text{MOS (units)} = \frac{\text{Total Profit}}{\text{Contribution per unit}}$$
$$\text{MOS (₹)} = \frac{\text{Total Profit}}{\text{P/V Ratio}}$$
## Important Tips
(i) Cash BEP: If the question asks for Cash BEP, replace Fixed Cost with (Fixed Cost − Depreciation) because depreciation is a non-cash expense.
$$\text{Cash BEP (units)} = \frac{\text{Fixed Cost} - \text{Depreciation}}{\text{Contribution per unit}}$$
(ii) Multi-product Weighted Average Contribution: When a company manufactures more than one product, compute the weighted average contribution per unit:
$$\text{Weighted Avg. Contribution} = \frac{(\text{Contri/unit}_A \times \text{Units}_A) + (\text{Contri/unit}_B \times \text{Units}_B)}{\text{Units}_A + \text{Units}_B}$$