Fountain Corp.has a selling price of $15 per unit and variable costs of $10 per unit.When 14,000 units are sold,profits equaled $45,000.What is the margin of safety?
A)$210,000
B)$105,000
C)$135,000
D)$75,000

Question

Quizplus · Accepted Answer

The margin of safety is calculated as actual sales minus break-even sales. First, calculate the break-even point: Fixed Costs = Total Profit - (Selling Price - Variable Cost) * Units Sold = $45,000 - ($15 - $10) * 14,000 = $25,000. Break-even sales = Fixed Costs / (Selling Price - Variable Cost) = $25,000 / ($15 - $10) = 5,000 units. Actual sales = 14,000 units * $15 = $210,000. Break-even sales in dollars = 5,000 units * $15 = $75,000. Margin of safety = $210,000 - $75,000 = $135,000.