Final answer:
The margin of safety for Lumberyard Company for June is calculated by subtracting the break-even point from actual sales in units and then converting it to dollars. It is found to be $63,000.
Step-by-step explanation:
The question you've asked relates to the calculation of a company's margin of safety for a particular time period. The margin of safety is the difference between actual sales and break-even sales. It determines how much sales can drop before the company incurs a loss.
To calculate the margin of safety for Lumberyard Company, we first need to determine the break-even point. The break-even point in units is calculated by dividing total fixed expenses by the contribution margin per unit, where the contribution margin per unit is the selling price per unit minus the unit variable expense.
Using the information given for Lumberyard Company:
- Selling price per unit = $42
- Unit variable expenses = $14
- Total fixed expenses = $42,000
- Actual sales for June = 3,000 units
First, we calculate the contribution margin per unit:
Contribution margin per unit = Selling price per unit - Unit variable expense = $42 - $14 = $28 per unit
Next, we determine the break-even point in units:
Break-even point in units = Total fixed expenses / Contribution margin per unit = $42,000 / $28 = 1,500 units
Finally, to find the margin of safety in units:
Margin of safety in units = Actual sales in units - Break-even point in units = 3,000 units - 1,500 units = 1,500 units
To convert this to dollars:
Margin of safety in dollars = Margin of safety in units * Selling price per unit = 1,500 units * $42 = $63,000
The margin of safety for Lumberyard Company for June is $63,000.