Question

The Mildmanner Corporation has the following data for 2018:

Selling price per unit	$15
Variable cost per unit	$9
Fixed costs	$45,000
Units sold	10,000 units

The margin of safety in units will be (round to the nearest whole unit)

a.667.

b.7,500.

c.4,000.

d.2,500.

Answer 1

Answer option d 2500units (explanation below)

margin of safety = profit/p/v ratio

p/v ratio = contribution per unit/selling price per unit

Contribution margin per unit = selling price per unit - variable expenses per unit

contribution margin per unit = $15 - $9 =$6

P/v ratio = $6/$15 ×100 = 40%

now profit = contribution margin - fixed expenses

= (10000×$6 - $45000) = $15000

margin of safety = $15000/40%

= $37500

margin of safety in unit's = $37500/$15 = 2500units

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