Question

Margin of Safety Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Break-even units equal 1,650. Required: 1. Calculate the margin of safety in terms of the number of units. units 2. Calculate the margin of safety in terms of sales revenue. $

Answer 1

Answer:

Margin of safety - Units =3350

Margin of safety - Sales Revenue = $251250

Explanation:

Margin of Safety indicates how much sales may decrease before a loss can be made.

Margin of safety - Units

Margin of safety - Units = 5000-1650 =3350

Margin of Safety as a % = 3350/5000 ×100 = 67%

Margin of safety - Sales Revenue

Expected Sales = (5000 × $75) =$375000

Margin of Safety = $375000 × 67% = $251250