Question

A​ break-even chart shows expected unit sales of​ 5,000 at​ £100 each, maximum profit of £​100,000, a break-even point of​ 2,143 units, and a loss of £​75,000 if no units are sold. What is the​ 'margin of​ safety'?

A. ​2,857 units
B. ​2,143 units
C. ​7,143 units
D. ​5,000 units

Answer 1

The margin of safety in the given example is the difference between expected sales of 5,000 units and the break-even point of 2,143 units, which equals 2,857 units (Option A).

Step-by-step explanation:

The question concerns the calculation of the margin of safety in a business scenario, which is a financial metric. The margin of safety is the difference between the actual or expected number of unit sales and the number of unit sales at the break-even point. In the provided example, expected unit sales are 5,000 and the break-even point is 2,143 units. Therefore, the margin of safety is the difference between these two figures, which is 5,000 minus 2,143, resulting in 2,857 units. Thus, the correct answer is A. ​2,857 units.