Question

Globus Autos sells a single product. 8 comma 400 units were sold resulting in $ 85 comma 000 of sales​ revenue, $ 22 comma 000 of variable​ costs, and $ 16 comma 000 of fixed costs. If variable costs decrease by $ 1.10 per​ unit, the new margin of safety is​ ________. (Round intermediate calculations to the nearest​ cent.) A. $ 66,176 B. $ 69,000 C. $ 85, 000 D. $ 22, 000

Answer 1

No.of units=8400

Sales=85000

Sale price per unit=85000/8400

=10.12

Variable cost=22000

Contribution=sales-variable cost

=85000-22000

=63000.

Contribution per unit=63000/8400=7.5

Break even sales in units=fixed cost /contribution per unit

16000/7.5=2133.33

Break even sales in amount=2133.33*85000/8400

=21587.30

Margin of safety in units=85000-21587.3

=63412.7

Now variable cost decrease by 1.1 per unit.

So total variable cost decrease in amount=8400*1.1=9240

So the new variable cost=22000-9240=12760

So the new contribution per unit=(85000-12760)/8400

=8.6

So break even sales in units=16000/8.6=1860.

So break even sales in amount=1860*85000/8400

=18824

So margin of safety in amount=85000-18824=66,176(nearly).