Question

Mississippi Mile Travel Company is conducting a sensitivity analysis in order to assess the​ company's margin of safety in units and in dollars. Predicted data indicate that​ 4,900 travel package sales can be expected while​ 2,000 package sales are necessary to meet the​ company's breakeven point. Each travel package sells for​ $2,700. Calculate the​ company's margin of safety in package units and dollars.

Answer 1

2,900 units; $7,830,000

Step-by-step explanation:

Given that,

Total sales = 4,900

Break-even sales = 2,000

Selling price of each package = $2,700

The margin of safety is defined as the amount of the total sales that are above the break even point.

Margin of safety in units:

= Total sales – Break-even sales

= 4,900 – 2,000

= 2,900 units

Margin of safety in dollars:

= Margin of safety in units × Selling price of each package

= 2,900 units × $2,700

= $7,830,000