Question

Estimated Fixed Cost Estimated Variable Cost (per unit sold) Production costs: Direct materials $ 8.00 Direct labor 3.00 Factory overhead $ 200,000 1.50 Selling expenses: Advertising 1,450,000 Sales salaries and commissions 93,000 1.85 Travel 340,000 Miscellaneous selling expense 2,000 Administrative expenses: Office and officers' salaries 300,000 10,000 Supplies 0.50 Miscellaneous administrative expense 5,000 0.05 Total $2,400,000 $15.00 It is expected that 400,000 units will be sold at a price of $25 a unit. Maximum sales within the relevant range are 500,000 units. Determine the following based upon the estimates for 2048: 1. Margin of safety for 2048 in units sold. $ 240,000 x 2. Margin of safety for 2048 in sales dollars. $ 240,000 х 3. Margin of safety for 20Y8 as a percentage of sales. 40 %

Answer 1

1 Margin of safety for 20Y8 in units sold 2 Margin of safety for 20Y8 in sales dollars. 160,000 $ 4,000,000 Working Notes: Contribution margin per unit = Selling price per unit - Variable Cost per unit $25-S15 S10 Contribution margin ratio = Contribution margin per unit / Selling price per unit = $10/$25 40% Break Even sales in Unit Fixed Cost Contribution margin per unit - $2,400,000/S10 240,000 Break even sales 240,000*S25 $6,000,000 Actuval sales 400,000*S25 = $10,000,0000 Margin of safety in Units = 400,000-240,000 160,000 Mmargin of afety in sales $10,000,000-$6,000,000 $4,000,000