Question

Lauren Company plans to sell 3,000 units of a product at $500 each. For the product, unit variable cost is $380 and break-even units are 700. Calculate the margin of safety for Lauren in terms of the number of units.

Answer 1

The margin of safety for Lauren Company is the difference between planned sales units (3,000 units) and break-even sales units (700 units), resulting in a margin of 2,300 units.

Step-by-step explanation:

The student's question regarding Lauren Company's margin of safety involves calculating the difference between actual or budgeted sales and the break-even sales volume. The concept of margin of safety is important in business and managerial accounting, as it indicates how much sales can fall before the company reaches its break-even point.

The formula to calculate the margin of safety in units is:

Margin of Safety in Units = Actual (or Planned) Sales Units - Break-Even Sales Units

Using the data provided:

Margin of Safety in Units = 3,000 units - 700 units = 2,300 units

Therefore, the margin of safety for Lauren Company, in terms of number of units, is 2,300 units.