Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per unit. Variable cost is $0.95 per unit and the fixed costs are $32 000 per month. Taizhong currently sells 140 000 units per month. How much is the margin of safety expressed in units per month?

Question

Quizplus · Accepted Answer

The margin of safety is calculated as the difference between actual sales and break-even sales. The break-even point in units is calculated as fixed costs divided by the contribution margin per unit (selling price - variable cost). Here, the contribution margin per unit is $1.20 - $0.95 = $0.25. The break-even point is $32,000 / $0.25 = 128,000 units. The margin of safety is 140,000 - 128,000 = 12,000 units.

Taizhong Semiconductor Company Mass Produces Several Common Computer Chips