Question

Sales price $6.53 per unit Variable costs $2.31 per unit Fixed Costs $9,822 Budgeted number of...

Sales price $6.53 per unit
Variable costs $2.31 per unit
Fixed Costs $9,822

Budgeted number of units 5,458

What is margin of safety in units?
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Answer #1

Margin of safety in units = Budgeted number of units - break even units

Break even units = Fixed cost/Contribution margin per unit

Contribution margin per unit = Unit selling price - Variable cost per unit = $6.53-$2.31 = $4.22

Fixed cost = $9822

Break even units = Fixed cost/Contribution margin per unit = $9822/$4.22 = 2327 units(Rounded to nearest whole figure)

So,

  • Margin of safety in units = Budgeted number of units - Break even units = 5458 units - 2327 units = 3131 units
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