Worbel 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.What is the margin of safety in dollars for 2015?
A) $5,000
B) $20,000
C) $30,000
D) $50,000

Question

Quizplus · Accepted Answer

The margin of safety in dollars is calculated as (Actual or Planned Sales - Break-Even Sales) * Selling Price per Unit. First, find the break-even point in units: $100,000 fixed costs / ($10 selling price - $5 variable cost) = 20,000 units. Then, for 2015, the margin of safety in units is 25,000 planned units - 20,000 break-even units = 5,000 units. Finally, convert this to dollars: 5,000 units * $10 selling price per unit = $50,000.

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