Question

Winston Co. has variable costs of $5 per unit and a selling price of $10 per unit. Fixed costs are $100,000. Planned unit sales for 2020 are 25,000 units. Actual unit sales for 2019 were 22,000 units. What is the margin of safety in ratios for 2020

Answer 1

Answer:

MOS( in %) = 20%

Explanation:

Margin of safety (MOS) determines the amount by which expected sales exceeds the break-even point (BEP).  

MOS can be calculated as follows:

MOS (units) = Budgeted sales - BEP

BEP= Fixed cost for the period / contribution per unit

Contribution per unit = Selling price - variable cost per unit

Contribution per unit = $10 - $5 =  $ 5

BEP (units) = 100,000/ 5= 20,000

MOS (in units) = 25,000 - 20,000 = 5000 units

Margin of Safety as a %

(5000/25,000 ) × 100= 20 %

MOS( in %) = 20%