For Wilder Corporation, sales is $1,200,000 (6,000 units), fixed expenses are $360,000, and the contribution margin per unit is $80.What is the margin of safety in dollars?
A)$60,000
B)$300,000
C)$540,000
D)$840,000

Question

Quizplus · Accepted Answer

The margin of safety in dollars is calculated as actual sales minus break-even sales. Break-even sales = Fixed expenses / Contribution margin per unit = $360,000 / $80 = 4,500 units. Actual sales = 6,000 units. Margin of safety in units = 6,000 - 4,500 = 1,500 units. Margin of safety in dollars = 1,500 units * $80 = $120,000. However, the correct calculation should be: Actual sales in dollars = $1,200,000. Break-even sales in dollars = 4,500 units * $80 = $360,000. Margin of safety in dollars = $1,200,000 - $360,000 = $840,000. The correct answer is D, not B.

For Wilder Corporation, Sales Is $1,200,000 (6,000 Units), Fixed Expenses