Question

Globus Autos sells a single product. 8,300 units were sold resulting in $84,000 of sales​ revenue, $24,000 of variable​ costs, and $18,000 of fixed costs. If Globus reduces the selling price by $1.10 per​ unit, the new margin of safety​ is: (Round any intermedary calculations to the nearest​ cent.) A. 2,872 units B. 8,300 units C. 5,364 units D. 5,428 units

Answer 1

Margin of safety= 5,364 units

Step-by-step explanation:

First, we need to calculate the break-even point in units:

Selling price= 84,000/8,300= $10.12

Unitary variable cost= $2.89

New selling price= 10.12 - 1.1= $9.02

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 18,000 / (9.02 - 2.89)

Break-even point in units= 2,936 units

Now, the margin of safety:

Margin of safety= (current sales level - break-even point)

Margin of safety= 8,300 - 2,936

Margin of safety= 5,364 units