Question

Manufacturing Ltd produces and sells a single product. Fixed costs are ​£360,000 per year and the​ break-even point of the business is 50,000 units. The profit each year is ​£290,000 Each product sells for ​£35

.

​Calculate:

1.The variable cost per unit

2.The number of units sold each year

3.The margin of safety

Answer 1

Ans:

Fixed Costs: £360,000

Break Even Sales : 50,000 Units

Profit : £290,000

Sale price : £35

Calcuation :

1.

Variable cost per Unit:

Contribution per Unit : Fixed Costs / Break Even Sales

= £360,000 / 50,000 = £7.2 Per unit.

Variable Cost per Unit : Sales Price Per Unit - Contribution Per Unit :

= £35 - £7.2 = £27.8

2.

The number of Units sold each Year :

: (Fixed Costs + Profit) / Contribution Per Unit:

= (£360,000 + £290,000) / £7.2 = 90,277.777 or 90,278 Units.

3.

Margin of safety units : 90,278 - 50,000 = 40,278

Margin of Safety:

(Current sales level - Break even Sales)/ Current sales Level * 100 =

(90,278 - 50,000) / 90,278 * 100 = 44.62%

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