Question

In: Accounting

Considering that the company has a unit break-even point of 600 units, what is the margin of safety in terms of both units and sales revenue?

APPLY THE CONCEPTS: Margin of Safety
Margin of safety can allow you to see how much padding there is for your company between profit and loss. If this number is great, it may indicate that your company is performing very well. If this number is small, it may be worth looking into possible remediation. Consider the following pricing and cost information:

Price and Cost InformationAmount
Selling Price per Unit$400
Variable Cost per Unit$325
Total Fixed Cost$45,000

For the upcoming period, the company projects that it will sell 1,000 units. Considering that the company has a unit break-even point of 600 units, what is the margin of safety in terms of both units and sales revenue? Round your answers to two decimal places, if necessary.

Margin of Safety in Units =  -  =


Margin of Safety in Sales Revenue = $ - $ = $

Solutions

Expert Solution

Particulars Amount $ Note
Number of units to be sold        1,000.00 A
Break even units           600.00 B
Margin of safety units           400.00 C=A-B
Sell price           400.00 D
Margin of safety $ 160,000.00 E=C*D

ekkarill92 answered 2 years ago
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