Question

Suzanne sells authentic Amish quilts on her website. Suppose Suzanne expects to sell 1 comma 600 quilts during the coming year. Her average sales price per quilt is $ 325​, and her average cost per quilt is $ 125. Her fixed expenses total $ 160 comma 000. Compute her margin of safety a. in units​ (quilts). b. in sales dollars. c. as a percentage of expected sales. a. Compute her margin of safety in units​ (quilts).

Answer 1

Answer:

(a) 800 units

(b) $260,000

(c) 50%

Explanation:

Given that,

Units expected to sold = 1,600 quilts

Average sales price per quilt = $325

Average cost per quilt = $125

Total fixed expenses = $160,000

Break even point sale:

= Total fixed expenses ÷ (Average sales price - Average cost)

= $160,000 ÷ ($325 - $125)

= $160,000 ÷ $200

= 800 units

(a) Margin of safety (in units):

= Units expected to sold - Break even point sale

= 1,600 units -  800 units

= 800 units

(b) Margin of safety (in sales dollar):

= Sales revenue - Break even point sale

= (1,600 × $ 325) - (800 × $ 325)

= $520,000 - $260,000

= $260,000

(c) Margin of safety (in percentage):

= Margin of safety (in sales dollar) ÷ Sales revenue

= $260,000 ÷ $520,000

= 0.5 or 50%