Question

In: Accounting

Z plc makes a single product which it sells for £16 per unit. Fixed costs are £76 800

Z plc makes a single product which it sells for £16 per unit. Fixed costs are £76 800 per month and the product has a contribution to sales ratio of 40%.

In a period when actual sales were £224 000, Z plc's margin of safety, in units, was

A 2000

B 6000

C 8000

D 12 000

E 14 000

Expert Solution

Formula

Margin of safety = Actual sales units - break even sales units

Break even sales = Fixed ccost / Contribution to sales ratio

= $76,800 /40%

= $192,000

Break even sales in units = $192,000 /16 = 12,000 units

Actual sales in units = $224,000/16 = 14,000 units

Therefore,

Margin of safety = 14,000 -12,000

= 2,000 units

Hence , correct answer is option A = 2,000

Ramesh R answered 3 years ago

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