Question

Ambrosia Foods produces a gourmet condiment that sells for $24 per unit. Variable cost is $6 per unit, and fixed costs are $8000 per month. If Ambrosia expects to sell 1500 units, compute the margin of safety in units. (Round any intermediate calculations and your final answer to the nearest whole unit.)
A) 444 units
B) 1056 units
C) 1500 units
D) 19 units

Answer 1

Answer:

Margin of safety= 1,056 units

Explanation:

Giving the following information:

Ambrosia Foods produces a gourmet condiment that sells for $24 per unit. Variable cost is $6 per unit, and fixed costs are $8000 per month. Ambrosia expects to sell 1500 units

First, we need to calculate the break-even point in units:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 8,000/ (24 - 6)

Break-even point in units= 444 units

Now, we can determine the margin of safety:

Margin of safety= (current sales level - break-even point)

Margin of safety= 1,500 - 444= 1,056 units