220k views
5 votes
Assume a company sells a single product. If Q equals the level of output, p is the selling price per unit, v is the variable expense per unit, and F is the fixed expense, then the safety margin in dollars is: Ans:

a. F/[Q(p-v)].
b. Q*p - F/[Q(p-v)].
c. Q*p - F/[(p-v)/p].
d. F/[(p-v)/p].

1 Answer

7 votes

Answer:

c. Q*p - F/[(p-v)/p].

Step-by-step explanation:

The safety margin represent the difference between the current level of sales and the break even point.

The current sales will be Q x p

While break even is as follow:


(Fixed\:Cost)/(Contribution \:Margin \:Ratio) = Break\: Even\: Point_(dollars)

Where:


Sales \: Revenue - Variable \: Cost = Contribution \: Margin


(Contribution \: Margin)/(Sales \: Revenue) = Contribution \: Margin \: Ratio

Thus will be:


(Fixed\:Cost)/((Sales \: Revenue - Variable \: Cost)/(Sales \: Revenue)) = Break\: Even\: Point_(dollars)

Making fit the third formula proposition for the second term.

User Terence Parr
by
8.2k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.