A company that makes organic fertilizer has supplied the following data: The company's margin of safety in units is closest to: (Round per unit calculations to 2 decimal places.)

Question

A company that makes organic fertilizer has supplied the following data:  The company's margin of safety in units is closest to: (Round per unit calculations to 2 decimal places.)

Quizplus · Accepted Answer

Margin of safety in units = Actual sales - Break-even sales
To calculate actual sales, we need to calculate the total revenue first.
Total revenue = Selling price x Sales volume
Selling price = $33
Sales volume = 18,000
Total revenue = $33 x 18,000 = $594,000

To calculate the break-even sales, we need to calculate the break-even point first.
Break-even point (in units) = Fixed costs / Contribution margin per unit
Fixed costs = $300,000
Contribution margin per unit = Selling price - Variable cost per unit
Selling price = $33
Variable cost per unit = $11
Contribution margin per unit = $33 - $11 = $22
Break-even point (in units) = $300,000 / $22 = 13,636.36 units
Round up to the nearest whole number: 13,637 units

Break-even sales = Break-even point x Selling price
Break-even sales = 13,637 x $33 = $450,321

Margin of safety in units = Actual sales - Break-even sales
Margin of safety in units = 18,000 - 13,637 = 4,363 units
Round to the nearest whole number: 4,363 units

Therefore, the company's margin of safety in units is closest to 4,363 units, which is option B.

A Company That Makes Organic Fertilizer Has Supplied the Following