The margin of safety is the amount by which sales can drop before losses begin to be incurred in an enterprise.

The break-even point is reached when the total contribution margin generated on sales just equals the total variable costs.

Once the break-even point is reached, net income will increase by the amount of the unit contribution margin for each additional unit sold.

The margin of safety is the excess of budgeted (or actual) sales over the break-even volume of sales.

Break-even analysis gives the manager the ability to predict what profits will be at various activity levels without the necessity of preparing detailed income statements.