Question
In: Accounting
Unistar Computers makes and sells a unique computer that is designed for a specific market. Cost...
Unistar Computers makes and sells a unique computer that is designed for a specific market. Cost information relating to that product is shown below:
| Sales price | $ | 1,500 | per unit | |
| Variable costs | $ | 1,000 | per unit | |
| Fixed costs | $ | 120,000 | total | |
Unistar expects to make and sell 300 computers. Based on this information, the margin of safety expressed in units is:
Multiple Choice
-
60 units.
-
300 units.
-
240 units.
-
120 units. please include formulas so i can see how you arrived at your answer. Thank you
Solutions
Expert Solution
Margin of safety in units = Current sales units - Break even point units
Break even point units = Fixed costs / Contribution margin per unit
Break even point units = $120,000 / $500 ($1,500-$1,000) = 240 units
Margin of safety in units = 300 - 240 = 60 units
Hence option 60 units is correct.
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