A manufacturer of premium wire strippers 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 manufacturer of premium wire strippers 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

We can use the following formula to calculate the margin of safety in units:
Margin of Safety (in units) = Actual sales - Break-even sales

To calculate the actual sales, we need to use the contribution margin per unit and the actual number of units sold. The contribution margin per unit can be calculated as follows:
Contribution Margin per Unit = Selling Price per Unit - Variable Cost per Unit
Contribution Margin per Unit = $60 - $48
Contribution Margin per Unit = $12

Now, we can use the following formula to calculate the actual number of units sold:
Actual Sales = Total Sales Revenue / Selling Price per Unit
Actual Sales = $2,580,000 / $60
Actual Sales = 43,000 units

To calculate the break-even sales, we need to use the following formula:
Break-even Sales = Fixed Costs / Contribution Margin Ratio
Contribution Margin Ratio = Contribution Margin per Unit / Selling Price per Unit
Contribution Margin Ratio = $12 / $60
Contribution Margin Ratio = 0.2

Break-even Sales = $1,290,000 / 0.2
Break-even Sales = 21,500 units

Now we can calculate the margin of safety in units:
Margin of Safety = Actual Sales - Break-even Sales
Margin of Safety = 43,000 - 21,500
Margin of Safety = 21,500 units

Therefore, the company's margin of safety in units is 21,500 which is closest to choice C.

A Manufacturer of Premium Wire Strippers Has Supplied the Following