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 sales revenues?

Question

Quizplus · Accepted Answer

The margin of safety is calculated as the difference between actual sales and break-even sales. First, calculate the break-even point in units: Fixed Costs / (Selling Price - Variable Cost) = $32,000 / ($1.20 - $0.95) = 128,000 units. The margin of safety in units is 140,000 - 128,000 = 12,000 units. In sales revenue, this is 12,000 units * $1.20 = $14,400.

Taizhong Semiconductor Company Mass Produces Several Common Computer Chips