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A break-even chart for Product X shows expected unit sales of 5 000 at $1 000 each, maximum profit of $200 000, a break-even point of 2 143 units and a loss of $150 000 if no units are sold. What is the margin of safety? a.        7 143 units           b.        2 857 units           c.        2 143 unitsd.        5 000 units

Question

A break-even chart for Product X shows expected unit sales of 5 000 at 1000each,maximumprofitof1 000 each, maximum profit of 200 000, a break-even point of 2 143 units and a loss of $150 000 if no units are sold. What is the margin of safety? a.        7 143 units           b.        2 857 units           c.        2 143 unitsd.        5 000 units

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Solution

The margin of safety is calculated as the difference between the expected level of sales and the break-even level of sales. In this case, the expected level of sales is 5,000 units and the break-even point is 2,143 units.

So, the margin of safety = Expected level of sales - Break-even point = 5,000 units - 2,143 units = 2,857 units

Therefore, the margin of safety is 2,857 units. So, the correct answer is b. 2,857 units.

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