Identifying the area of profit, loss and the margin of safety
We can see the area of profit and the area of loss on a break-even chart. Below the break-even point the business will make a loss but above the break-even point it will make a profit.
The profit or loss at any point is the difference between total receipts and total costs.
Pause for thought
If Rholiau Rhian sells 800 sandwiches a month, how much profit does the business make?
The margin of safety is the difference between how much a business sells/produces and the number they need to sell to break-even. A larger margin of safety is safer.
Rholiau Rhian sells 800 sandwiches a month so the margin of safety is 200 units, as seen below.