Question

Garfield Corporation is considering building a new plant in Canada. It predicts sales at the new plant to be 60 comma 000 units at $ 7?/unit. Below is a listing of estimated? expenses: Category Total Annual Expenses ?% of Annual Expense that are Fixed Materials $ 70 comma 000 30?% Labor $ 30 comma 000 20?% Overhead $ 80 comma 000 30?% ?Marketing/Admin $ 50 comma 000 40?% A Canadian firm was contracted to sell the product and will receive a commission of 20?% of the sales price. No U.S. home office expenses will be allocated to the new facility. The margin of safety percentage for Duncan Enterprises is? (Round any intermediary percentage calculations to the nearest whole? percent.)

Answer 1

Margin of safety = (Actual sales - Break even point )÷Actual Sales

Break even point= Total fixed cost÷(Price per unit-variable cost per unit)

Fixed expenses of commission = 20% of sales value

Fixed expenses of commission =20% of 60000×7=420000×20%=84000

Variable expenses=Material + labour+overhead+ marketing/admin

VC=70%of70000÷60000+80%of 30000÷60000+70%of 80000÷60000+ 60%of50000÷60000

VC=0.82+0.4+0.93+0.5

VC=2.65

Fixed cost =21000 of material+6000 of labour+24000 of overhead+20000 of marketing

Fixed cost = 71000

Total fixed cost=71000+84000=155000

Break even point=155000÷(7-2.65)=155000÷4.35=35632 units

Margin of safety =( 60000-35632)/60000=24368/60000

=40.61%