Question

A company produces and sells a product. The unit variable cost is $51 and the unit selling price is $74. The fixed cost associated with the product is $147,255 per year. The company must produce and sell ___________ units per year in order to generate an income (or profit) $77,325 per year.

Answer 1

margin of safety  

calculation of units to produce and sell inorder earn profit $77325 per year

margin of safety units = (profit + fixed cost ) / contribution per unit

contribution per unit = selling price per unit - variable cost per unit = $74 - $51 = $23

margin of safety unit = ($77325+$147255)/ $23 = 9764.3 units rounded to 9765 units

9765 units of sales can bring profit of $77325

sales = 9765*74 = 722610

variable cost = 9765*51 = 498015

contribution = 224595

fixed cost = 147255

profit = 77340 (excess profit due to rounding of units)