Question

21-Homework Saved Help Save & Exit Subn Check my work QS 21-11 Margin of safety LO P2 Zhao Co. has fixed costs of $455,600. Its single product sells for $191 per unit, and variable costs are $124 per unit If the company expects sales of 10,000 units, compute its margin of safety in dollars and as a percent of expected sales Margin of safety

Answer 1

Solution:
		Dollars	Percent
	Margin of safety	$611,200	32	%
Working Notes:
	Contribution margin per unit = Selling price per unit - Variable cost per unit
	Contribution margin per unit = $191 - $124
	Contribution margin per unit = $67
	Break­even point in units = Fixed cost /Contribution margin per unit
	Break­even point in units = $455,600/$67
	Break­even point in units =6,800 units
	Margin of safety in units = Total actual sales units - Break even point in units
	Margin of safety in units = 10,000 units - 6,800 units
	Margin of safety in units = 3,200 units
	Margin of safety in Dollars =Margin of safety in units x selling price per units
	Margin of safety in Dollars =3,200 units x $191
	Margin of safety in Dollars =$611,200
	Margin of safety (%) =Margin of safety in Dollars /Total actual sales in dollars for 10,000 units
	Margin of safety (%) =$611,200 /(total expected units 10,000 x selling price per unit $191 )
	Margin of safety (%) =$611,200 /$1,910,000
	Margin of safety (%) =0.32
	Margin of safety (%) = 32%
Please feel free to ask if anything about above solution in comment section of the question.