Question

If a product’s selling price is $110 per unit, the variable cost is $45 per unit and fixed costs are $3,000 per month, then the margin of safety in sales dollars is ________, when 125 units are sold in one month. (In your calculations, round to the next whole number.)

Answer 1

Answer:

Margin of safety= $8,673

Explanation:

Giving the following information:

Selling price= $110 per unit

Variable cost per unit= $45

Fixed costs= $3,000

First, we need to calculate the break-even point in dollars using the following formula:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 3,000 / [(110 - 45)/110]

Break-even point (dollars)= $5,077

Now, we can calculate the margin of safety:

Margin of safety= (current sales level - break-even point)

Margin of safety= (110*125 - 5,077)

Margin of safety= $8,673