Answer:
Margin of safety= 9,000 units
Explanation:
Giving the following information:
Each bottle sells for 3.60.
Variable unit costs are as follows:
Acrylic base- .75
Pigments- .38
Other ingredients- .35
Bottle, packing material- 1.15
Selling commission- .25
Fixed overhead costs are 12000 per year. Fixed selling and administrative costs are 6720 per year. Chromatics sold 35000 bottles last year.
First, we need to calculate the variable cost per unit and total fixed costs:
Unitary variable cost= 0.75 + 0.38 + 0.35 + 1.15 + 0.25= $2.88
Total fixed costs= fixed overhead + fixed selling and administrative= 12,000 + 6,720= 18,720
Now, we can calculate the break-even point in units:
Break-even point= fixed costs/ contribution margin
Break-even point= 18,720 / (3.6 - 2.88)= 26,000 units
Margin of safety ratio= (current sales level - break-even point)
Margin of safety ratio= 35,000 - 26,000= 9,000 units
