Question

The following monthly data are available for Seasons Company which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $42,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June?

Answer 1

Answer:

The margin of safety for june is 2500 units.

Explanation:

The margin of safety is the additional units sold by a firm over its break even point.

The break even point is the point where the firm is making no profit or no loss.

To calculate the margin of safety, we first need to find out the break even point in units.

Break even in units = Fixed costs / contribution per unit

Where, contribution per unit = Selling price per unit - Variable cost per unit

So,

Break even in units = 42000 / (42 - 14) = 1500 units

The margin of safety is = 4000 - 1500 = 2500 units