Winston Company has variable costs of $5 per unit and a selling price of $10 per unit.Fixed costs are $100,000.Planned unit sales for 2015 are 25,000 units.Actual unit sales for 2014 were 22,000 units.What is the margin of safety in units for 2015?
A) 2,000 units
B) 3,000 units
C) 5,000 units
D) 7,000 units

Question

Quizplus · Accepted Answer

To calculate the margin of safety in units, we first need to find the break-even point:
Break-even point = Fixed costs ÷ Contribution margin per unit
Contribution margin per unit = Selling price per unit - Variable costs per unit
Contribution margin per unit = $10 - $5 = $5
Break-even point = $100,000 ÷ $5 = 20,000 units
The planned unit sales for 2015 are 25,000 units, so the margin of safety in units is:
Margin of safety = Actual unit sales - Break-even point
Margin of safety = 25,000 units - 20,000 units
Margin of safety = 5,000 units
Therefore, the best choice is C, with an explanation that the margin of safety in units for 2015 is 5,000 units.

Winston Company Has Variable Costs of $5 Per Unit and a Selling