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Domino Industries makes a product that sells for $25 per unit. The product has a $5...

Domino Industries makes a product that sells for $25 per unit. The product has a $5 per unit variable cost and total fixed costs of $18,000. At budgeted sales of 1,000 units, the margin of safety ratio is

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Answer #1

Sales =budgeted sales * sale price per unit = 1000*25 = 25000

Variable cost = budgeted sales * variable cost per unit =1000*5 = 5000

Fixed cost = 18000

Profit = Sales – variable cost – fixed cost = 25000-5000-18000 = 2000

Contribution= sales – variable cost = 25000-5000 = 20000

PV ratio = contribution/sales * 100 = 20000/25000*100 = 80% = 0.80

Break even sales = fixed cost / pv ratio = 18000/0.80 = 22500

Margin of safety = Budgeted sales – break even sales = 25000-22500 = 2500

Margin of safety ratio = margin of safety / sales * 100 = 2500/25000*100 = 10%

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