Question

The following monthly data are available for Sheridan Company 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, 7000 units. How much is the margin of safety for the company for June

Answer 1

Answer:

$199,500

Explanation:

The computation of the margin of safety is shown below:

As we know that

margin of safety = Actual sales - break even sales

where,

Actual sales is

= Actual sales units × Selling price per unit

= 7,000 units × $38

= $266,000

And, the break even sales is

= Fixed cost ÷ contribution margin per unit

= $42,000 ÷ ($38 - $14)

= $42,000 ÷ $24

= 1,750 units

Now the break even sales is

= Break even units × selling price per unit

= 1,750 units × $38

= $66,500

So, the margin of safety is

= $266,000 - $66,500

= $199,500