Clyde’s Pastry Co. sells pastries for $5, and incurs variable costs of $1 per pastry. Clyde’s...

Clyde’s Pastry Co. sells pastries for $5, and incurs variable costs of $1 per pastry. Clyde’s total fixed costs are $10,000 per year. By what amount will Clyde’s margin of safety decrease if Clyde sells 2,700 rather than 3,000 pastries during the year?

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Clyde’s Pastry Co.	Amount $	Note
Sell price per unit	5.00	A
Less: Variable costs	1.00	B
Contribution margin per unit	4.00	C
Fixed costs	10,000.00	D
Break-even point (units)	2,500.00	E=D/C
Total sales (units)	3,000.00	F
Margin of safety (units)	500.00	G=F-E
Margin of safety ($)	2,500.00	*H=GA**

If total sales (units)	2,700.00	I
Then margin of safety (units)	200.00	J=I-E
Margin of safety ($)	1,000.00	*K=JA**
Decrease in margin of safety ($) by	1,500.00	L=H-K
So Clyde’s margin of safety will decrease by $ 1,500 if Clyde sells 2,700 rather than 3,000 pastries during the year.

ekkarill92 answered 2 years ago

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