Our company sells its product for $100 per unit and has a variable cost of $40 per unit. Total fixed costs equal $18,000. The breakeven in units is 300, and we expect to sell 350 units. What is the margin of safety in dollars?Group of answer choices($5,000)$3,000($3,000)$5,000
Question
Our company sells its product for 40 per unit. Total fixed costs equal 5,000)3,000)$5,000
Solution
The margin of safety in dollars can be calculated using the formula:
Margin of Safety = (Actual or Budgeted Sales - Break Even Sales) x Selling Price per Unit
Given that the expected sales are 350 units and the breakeven sales are 300 units, the margin of safety in units is 50 units.
Given that the selling price per unit is $100, the margin of safety in dollars is:
Margin of Safety = (350 units - 300 units) x 100/unit = $5,000
So, the margin of safety in dollars is $5,000.
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