Question

You are given the following: Sales Quantity: 11,000 Fixed costs for the year: 9,000 Unit Sales...

You are given the following:

Sales Quantity: 11,000

Fixed costs for the year: 9,000

Unit Sales Price: 10

Unit Variable Cost: 8

What is the Margin of Safety (MOS) in sales dollars?

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Answer #1

Margin of safety in sales dollar = Current sales - Break even point in sales dollar

Current sales = Sales quantity * unit sales price

= 11,000 * $10

= $110,000

Break even sales in point dollar = Fixed cost / contribution margin ratio

Fixed cost = $9,000

Contribution margin ratio = (Selling price - variable cost per unit) / Selling price

= ($10 - $8) / $10

= $2 / $10

= 20%

Break even point in sales dollar = $9,000 / 20%

= $45,000

Margin of safety in sales dollar = $110,000 - $45,000

= $65,000

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