Wetzel Company has variable costs of $5 per unit and a selling price of $10 per unit.Fixed costs are $200,000.Planned unit sales for 2015 are 45,000 units.Actual unit sales for 2014 were 42,000.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

The margin of safety in units is calculated as the difference between planned sales and breakeven sales. Breakeven sales = Fixed Costs / (Selling Price - Variable Cost) = $200,000 / ($10 - $5) = 40,000 units. Margin of safety = Planned sales - Breakeven sales = 45,000 - 40,000 = 5,000 units.

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