Question

Item 1Item 1 Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $486,000. Current sales total 18,500 units. If Narchie sells 29,000 units, its safety margin will be:

Answer 1

Answer:

$235,000

Explanation:

The computation fo the safety margin is shown below:

As we know that

Margin of safety = Expected sales - break even sales

where,

Expected sales is

= 29,000 units × $50

= $1,450,000

And, the break even sales is

= Fixed cost ÷ contribution margin per unit

= $486,000 ÷ ($50 - $50 × 0.60)

= $486,000 ÷ $20

= 24,300 units

And, the selling price is $50

So the break even sales is

= 24,300 units × $50

= $1,215,000

So, the safety margin is

= $1,450,000 - $1,215,000

= $235,000