Answer:
Margin of safety= 150 units
Margin of safety ratio= 15.9%
Explanation:
Giving the following information:
Selling price per unit $29
Variable expense per unit $18
Fixed expense per month $8,800
Unit sales per month 950
To calculate the margin of safety both in units and as a percentage of sales, first, we need to calculate the break-even point in units.
Break-even point= fixed costs/ contribution margin
Break-even point= 8,800/ (29 - 18)= 800 units
Now, we can calculate the margin of safety in units:
Margin of safety= (current sales level - break-even point)
Margin of safety= (950 - 800)= 150 units
As a percentage of sales:
Margin of safety ratio= (current sales level - break-even point)/current sales level
Margin of safety ratio= 150/950= 0.159= 15.9%
