Question

Heather hudson makes stuffed teddy bears. recent information for her business follows: selling price per bear $ 35.00 total fixed cost per month 1,500.00 variable cost per bear 24.00 if she sells 275 bears next month, determine the margin of safety in units, sales dollars, and as a percentage of sales.

Answer 1

To determine the margin of safety for Heather's business, we use the break-even point formula and the given information. The margin of safety is the difference between actual sales and the break-even point. It can be expressed in units, sales dollars, and as a percentage of sales. In this case, the margin of safety is approximately 138.64 units, $4,847.40 in sales dollars, and about 17.63% of sales.

Step-by-step explanation:

To determine the margin of safety in units, sales dollars, and as a percentage of sales, we first need to calculate the break-even point. The break-even point is the level of sales at which total revenue equals total cost, resulting in zero profit or loss. The formula to calculate the break-even point is:

Break-even point (in units) = Total Fixed Cost / (Selling Price per Unit - Variable Cost per Unit)

Using the given information:

Total Fixed Cost = $1,500

Selling Price per Bear = $35.00

Variable Cost per Bear = $24.00

Substituting these values into the formula:

Break-even point (in units) = $1,500 / ($35.00 - $24.00) = $1,500 / $11.00 ≈ 136.36

Now that we know the break-even point, we can calculate the margin of safety:

Margin of Safety (in units) = Actual Sales - Break-even point

Margin of Safety (in sales dollars) = Margin of Safety (in units) x Selling Price per Bear

Margin of Safety (as a percentage of sales) = (Margin of Safety (in sales dollars) / Actual Sales) x 100%

Substituting the given values for Actual Sales:

Actual Sales = 275 bears

Calculating the margin of safety:

Margin of Safety (in units) = 275 - 136.36 ≈ 138.64 units

Margin of Safety (in sales dollars) = 138.64 units x $35.00 = $4,847.40

Margin of Safety (as a percentage of sales) = ($4,847.40 / 275 bears) x 100% ≈ 17.63%

Answer 2

First, you'll want to break down each item:
Sale price of a bear - $35
Fixed cost - $1,500
Variable cost of a bear - $24

If she sells 275 bears next month we will determine:
Margin of safety in units
Margin of safety in sales dollars
Margin of safety as a percentage of sales

Next, we will determine the dollar amount of sales and costs by multiplying the units sold by the price sold/cost of good
275 x $35 = $9,625
275 x $24 = $6,600
Fixed costs = $1,500

To find the margin of safety as a percentage of sales we will subtract the breakeven point from the current sales level and then divide by the current sales level
(Current sales level - breakeven point)/current sales level
$9,625 - $8,100 (fixed costs + cost of good)/ $9,625 =
15.84% is the margin of safety as a percentage

To find the margin of safety in unites we will subtract the breakeven point from the current sales level and then divide by the price per unit sold
$9,625 - $8,100 / 35 = 43.57 units is the margin of safety as a unit

To find the margin of safety in sales dollars we will subtract the breakeven sales from actual sales
$9,625 - $8,100 = $1,525 is the margin of safety in sales dollars

You can also find the margin on sales as a percentage after finding the margin of safety in sales dollars by taking the margin of safety in sales dollars and dividing it by the actual sales and then multiplying it by 100.
$1,525/$9,625 = 0.1584 x 100 = 15.84%