Write differences between margin of safety and contribution.

1.	Write differences between margin of safety and contribution.
Answer» Margin of Safety: Margin of safety refers to the difference between total sales and the sales at break even point Margin of safety indicates the soundness of the business. A high margin of safety indicates an extremely, favourable position of the firm is the market since even with a sustained decline in sales the firm will continue to earn profit. Contribution: By contribution we mean the difference between the sales price and variable cost or marginal cost. In other words, the excess of amount received through sales over the variable cost in termed on contribution. This amount is equal to fixed cost and profit or, Contribution = Sales price - Marginal cost. Or, Contribution = (Fixed cost + Profit - Loss) Or , Contribution = Sales x P/V Ratio.

Answer»

Margin of Safety: Margin of safety refers to the difference between total sales and the sales at break even point Margin of safety indicates the soundness of the business. A high margin of safety indicates an extremely, favourable position of the firm is the market since even with a sustained decline in sales the firm will continue to earn profit.

Contribution: By contribution we mean the difference between the sales price and variable cost or marginal cost. In other words, the excess of amount received through sales over the variable cost in termed on contribution. This amount is equal to fixed cost and profit or,

Contribution = Sales price - Marginal cost.

Or, Contribution = (Fixed cost + Profit - Loss)

Or , Contribution = Sales x P/V Ratio.

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