Question

Sales price $6.84 per unit Variable costs $2.14 per unit Fixed Costs $9,693 Budgeted number of units 5,159 What is margin of safety in units?

Answer 1

Margin of Safety =3096.7 units

Step-by-step explanation:

Margin of safety is the excess of budgeted sales over and above the break-even sales figures. It depicts how much sales can fall short of target before a business starts making a loss.

The margin of safety is calculate as follows:

MOS = budgeted sales - Break-even point

Break-even point = Total general fixed cost/(sales- variable cost)

Fixed cost - 9,693, selling price - $6.84, Variable cost- 2.14

Break-even point (in units) = 9,693/(6.84-2.14)=2062.34 units

MOS = 5,159 - 2062.34= 3096.7 units

Margin of Safety =3096.7 units