Question

QS 18-11 Margin of safety LO P2 Zhao Co. has fixed costs of $455,600. Its single product sells for $191 per unit, and variable costs are $124 per unit. If the company expects sales of 10,000 units, compute its margin of safety in dollars and as a percent of expected sales.

Answer 1

The margin of safety in dollars is $611,200 and the margin of safety percent is 32%

Step-by-step explanation:

In order to calculate the margin of safety in dollars and as a percent of expected sales If the company expects sales of 10,000 units we would have to calculate the following:

margin of safety in dollars=Margin of Safety units*sold price

sold price=$191 per unit

Margin of Safety units = Sales - Breakeven units

sales=10,000 units

Breakeven units = Fixed cost/Contribution margin per unit

B reakeven units= $455,600/($191-$124) =

B reakeven units= 6800

Margin of Safety units =10,000 - 6.800

Margin of Safety units =3,200

Therefore, Margin of Safety in dollars = 3,200*$191

Margin of Safety in dollars =$611,200

Margin of Safety percent=Margin of Safety units/sales

Margin of Safety percent= 3,200/10,000

Margin of Safety percent=32%

The margin of safety in dollars is $611,200 and the margin of safety percent is 32%