Question

The following monthly data are available for Coronado Industries. which produces only one product: Selling price per unit, $38; Unit variable expenses, $14; Total fixed expenses, $42000; Actual sales for the month of June, 3000 units. How much is the margin of safety for the company for June? $42000 $1750 $47500 $84000

Answer 1

Answer:

The correct answer is C.

Explanation:

Giving the following information:

Selling price per unit= $38

Unit variable expenses= $14

Total fixed expenses= $42,000

Actual sales for June= 3000 units.

First, we need to calculate the break-even point in dollar using the following formula:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 42,000/ [(38 - 14)/38]

Break-even point (dollars)= $66,500

Now, we can calculate the margin of safety in dollars:

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

Margin of safety= (3,000*38 - 66,500)

Margin of safety= (114,000 - 66,500)

Margin of safety= $47,500