Randolph Corporation sells a single product at a price of $275 per unit.Variable cost per unit is $135 and fixed costs total $356,860.If sales are expected to be $825,000, what is the company's margin of safety?

Question

Quizplus · Accepted Answer

The margin of safety is the difference between actual (or expected) sales and the break-even sales. First, calculate the break-even point in dollars: Fixed Costs / (Selling Price per Unit - Variable Cost per Unit) = $356,860 / ($275 - $135) = $356,860 / $140 = 2,549 units (break-even point). Then, convert this to dollars: 2,549 units * $275 = $700,975 (break-even sales in dollars). Finally, subtract the break-even sales from the expected sales: $825,000 - $700,975 = $124,025.

Randolph Corporation Sells a Single Product at a Price of $275