Jordan Company Jordan Company manufactures a single product.Each unit sells for $15.The firm's projected costs are listed below:
$\begin{array}{ll}
\text { Variable costs per unt: }\
~~\text { Prochıction } & \$ 5 \
~~\text { SG\&A } & \$ 1 \
\text { Fixed costs: } & \
~~\text { Prochıction } & \$ 40,000 \
~~\text { SG\&A } & \$ 60,000 \
~~\text { Estimated volume } & 20,000 \text { units }
\end{array}$ Refer to Jordan Company.What is Jordan's projected margin of safety for the current year?

Question

Quizplus · Accepted Answer

The margin of safety is the difference between the estimated sales and the break-even sales. The break-even sales are calculated by dividing the fixed costs by the contribution margin per unit. The contribution margin per unit is the difference between the selling price per unit and the variable costs per unit. In this case, the fixed costs are $40,000 + $60,000 = $100,000, the selling price per unit is $15, and the variable costs per unit are $5 + $1 = $6. Therefore, the contribution margin per unit is $15 - $6 = $9. The break-even sales are $100,000 / $9 = 11,111 units. The estimated sales are 20,000 units. Therefore, the margin of safety is 20,000 units - 11,111 units = 8,889 units. The margin of safety in dollars is 8,889 units * $9 = $80,000.

Jordan Company Jordan Company Manufactures a Single Product Refer to Jordan Company