Exhibit 6-1
Larimer Company has monthly fixed costs totaling $90,000 and variable costs of $5 per unit.Each unit of product is sold for $20.
-Refer to Exhibit 6-1.Assume that Larimer Company expects to sell 11,000 units of product this coming month.What is the margin of safety in units?
A)5,000
B)6,500
C)7,400
D)7,000
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

The break-even point in units is calculated as fixed costs divided by the contribution margin per unit ($20 - $5 = $15). So, $90,000 / $15 = 6,000 units. The margin of safety in units is the expected sales minus the break-even sales: 11,000 - 6,000 = 5,000 units.

Exhibit 6-1 Larimer Company Has Monthly Fixed Costs Totaling $90,000 and Variable