Reference: 08-06
Arthur Company had the following data for the year just ended: $$\begin{array} { | l | l | }
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$$
-If the company wants its margin of safety to equal $35,000 next year, all other factors remaining the same, how many units will it need to sell (round your final answer to the nearest whole number)

Question

Reference: 08-06
Arthur Company had the following data for the year just ended: $$\begin{array} { | l | l | } 
\hline \text { Sales } & 4,000 \text { units } \
\hline \text { Sales price } & \$ 60 \text { per unit } \
\hline \text { Variable cost } & \$ 18 \text { per unit } \
\hline \text { Fixed costs } & \$ 42,000 \
\hline
\end{array}$$
-If the company wants its margin of safety to equal $35,000 next year, all other factors remaining the same, how many units will it need to sell (round your final answer to the nearest whole number)

Quizplus · Accepted Answer

The margin of safety in dollars is desired to be $35,000. To find the required sales in units, we first calculate the break-even point in units, then add the units equivalent to the margin of safety. Break-even point in units = Fixed Costs / (Sales price per unit - Variable cost per unit) = $42,000 / ($60 - $18) = $42,000 / $42 = 1,000 units. To achieve a margin of safety of $35,000, we convert this dollar amount into units by dividing by the sales price per unit: $35,000 / $60 = 583.33 units. Adding this to the break-even units gives 1,000 + 583.33 = 1,583.33 units, which rounds to 1,583 units.

Reference: 08-06 Arthur Company Had the Following Data for the Year

Reference: 08-06
Arthur Company Had the Following Data for the Year