Answer:
Margin of safety (units)= 1,500 units
Margin of safety (dollars)= $90,000
Explanation:
Giving the following information:
Sales= 3,500 units
Selling price= $60
Unitary variable cost= $21
Total fixed cost equals $78,000
First, we need to calculate the break-even point both in units and dollars:
Break-even point in units= fixed costs/ contribution margin per unit
Break-even point in units= 78,000/ (60 - 21)
Break-even point in units= 2,000 units
Break-even point (dollars)= fixed costs/ contribution margin ratio
Break-even point (dollars)= 78,000/ (39/60)
Break-even point (dollars)= $120,000
Now, we can determine the margin of safety:
Margin of safety= (current sales level - break-even point)
Margin of safety (units)= 3,500 - 2,000= 1,500 units
Margin of safety (dollars)= 210,000 - 120,000= $90,000
