Solution: | |||
1. | Margin of safety (in dollars) = $4,200 | ||
2. | Margin of safety % = 15.15 % | ||
Working Notes: | |||
Notes: | Margin of safety is difference of actual sales and break even sales , it the safety which is before making loss. | ||
Contribution margin per unit = Selling price per unit - Variable cost per unit | |||
=$28 - $13 | |||
=$15 | |||
Break even units = Fixed cost/ Contribution margin per unit | |||
=$12,600/$15 | |||
=840 units | |||
Margin of safety in units = total budgeted units - Break even units | |||
=990 - 840 | |||
=150 units | |||
Margin of safety (in dollars) = Margin of safety in units x Selling price per unit | |||
=150 x $28 | |||
=$4,200 | |||
Margin of safety (%) = Margin of safety in dollars/Total budgeted sales | |||
=$4,200/(budgeted sales in units x selling price per unit) | |||
=$4,200/(990 x 28) | |||
=$4,200/27,720 | |||
=0.15151515 | |||
=15.15% | |||
Please feel free to ask if anything about above solution in comment section of the question. |
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