Question

Jones Company makes and sells 1,000 tables a year for $350 per table. Manufacturing costs per...

Jones Company makes and sells 1,000 tables a year for $350 per table. Manufacturing costs per table are direct material cost of $138 and direct labor cost of $52. Two hours of direct labor are required to manufacture a table. Manufacturing overhead (all fixed) is applied based on labor hours at a rate of $36 per hour. What is the margin of safety in units?

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Answer #1

Selling price = 350

Variable cost = Direct material + Direct labour

= 138 + 52

= 190

Contribution margin = Selling price - Variable cost

= 350 - 190

= $160

Fixed cost

= 2 hours is used to manufacture one unit therefore 1,000*2 hours is used = 2,000 hours

= 2,000*36

= 72,000

Breakeven sales = Fixed cost/contribution margin per unit

= 72,000/160

= 450 units

Margin of safety units = Total sales - Breakeven sales

= 1,000 - 450

= 550 units

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