Question

sells authentic Amish quilts on her website. Suppose Susy expects to sell 2 comma 000 quilts during the coming year. Her average sales price per quilt is $ 400​, and her average cost per quilt is $ 300. Her fixed expenses total $ 100 comma 000. Compute her margin of safety a. in units​ (quilts). b. in sales dollars. c. as a percentage of expected sales.

Answer 1

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Expected sales= 2,000 units

Selling price= $400​

Unitary variable cost= $300

Fixed costs= $100,000.

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

Break-even point= fixed costs/ contribution margin

Break-even point= 100,000/ (400 - 300)= 1,000 units

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

Break-even point (dollars)= 100,000/ (100/400)= $4,000,000

Now, we can calculate the margin of safety in units, dollars and as a percentage:

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

Margin of safety (units)= 2,000 - 1,000= 1,000 units

Margin of safety (dollars)= 8,000,000 - 4,000,000= $4,000,000

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

Margin of safety ratio= 4,000,000/8,000,000= 0.5= 50%