Question

Owen Company makes a product that sells for $61 per unit. The company pays $37 per unit for the varlable costs of the product and incurs annual fixed costs of $360,000. Owen expects to sell 20,000 units of product Required Determine Owen's margin of safety expressed as a percentage

Answer 1

Answer:

25%

Explanation:

the formula for the margin of safety is as follows

margin = current sales level -breakeven point/ current sales level x 100

expected sales unit = 20,000 units

the break-even point is fixed costs/contribution margin

fixed costs= $360,000

contribution margin = sales price- variable costs

=61-37

=24

breakeven point = $360,000/ 24

=15000

the margin of safety =  20,000-15,000/20,000 x 100

=5000/20000 x 100

=25%