Jarvis Foods produces a gourmet condiment which sells for $10.00 per unit. Variable costs are $7.50 per unit, and fixed costs are $18 000 per month. Jarvis is currently selling 8 000 units per month. How much is Jarvis's margin of safety expressed in units?

Question

Quizplus · Accepted Answer

The margin of safety in units is calculated as the difference between actual sales and break-even sales. Break-even sales = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit) = $18,000 / ($10.00 - $7.50) = 7,200 units. Margin of safety = Actual sales - Break-even sales = 8,000 units - 7,200 units = 800 units.

Jarvis Foods Produces a Gourmet Condiment Which Sells for $10