Answer:
Margin of safety is 480 units
Margin of safety ratio is 40%
Explanation:
The Margin of Safety is the difference between sales and Breakeven sales in terms of Dollar or Volume.
First, we need to calculate the following values
Fixed cost = Fixed manufacturing costs + Fixed administrative costs = $2,400 + 12,00 = $3,600
Variable cost = ( Variable manufacturing costs + Variable selling costs ) / Units sold = ( $4,800 + $1,200 ) / 1,200 units = $5
Contribution per unit = Selling price - Variable cost = ) = $10 - $5 = $5
Breakeven sales = Fixed cost / Constribution = $3,600 / $5 = 720 units
To calculate the Margin of Safety, use the following formula
Margin of Safety = Sale - Breakeven sale = 1,200 units - 720 units = 480 units
Margin of safety ratio = Margin of safety / Sales = 480 units / 1,200 units = 0.40 = 40%
