Question

15

Required information [The following information applies to the questions displayed below.] Adams Company makes and sells products with variable costs of $24 each. Adams incurs annual fixed costs of $321,280. The current sales price is $88. Note: The requirements of this question are interdependent. For example, the $256,000 desired profit introduced in Requirement c also applies to subsequent requirements. Likewise, the $80 sales price introduced in Requirement d applies to the subsequent requirements. g. Assume that Adams concludes that it can sell 10,200 units of product for $80 each. Recall that variable costs are $30 each and fixed costs are $282,000. Compute the margin of safety in units and dollars and as a percentage. (Do not round intermediate calculations. Round your answers to the nearest whole number. Round your percentage answer to nearest whole percentage For example, 0.1234 should be entered as 12%) Margin of safety in units Margin of safety in dollars Margin of safety %

Answer 1

g. Contribution margin per unit = Sales price per unit - Variable costs per unit

= $80 - $30

= $50

Break-even units = Fixed costs / Contribution margin per unit

= $282,000 / $50

= 5,640

Margin of safety in units = Sales in units - Break even units

= 10,200 - 5,640

= 4,560

Margin of safety in dollars = 4,560 * $80 per unit

= $364,800

Margin of safety percentage = Margin of safety / Sales

= 4,560 / 10,200

= 45%