Bonita Corporation produces only one product.Monthly data includes: selling price per unit, $42; unit variable expenses, $14; total fixed expenses, $84,000; actual sales for the month of June, 4,000 units.What is the margin of safety?

Question

Quizplus · Accepted Answer

Margin of safety = Total Sales - Break-even Sales
Break-even Sales = (Total Fixed Expenses)/(Contribution Margin per unit)
Contribution Margin per unit = Selling Price per unit - Unit Variable Expenses

Using the given data:
Contribution Margin per unit = $42 - $14 = $28
Break-even Sales = $84,000/$28 = 3,000 units
Total sales = 4,000 units x $42 per unit = $168,000
Margin of safety = $168,000 - $84,000 - ($14 x 4,000 units) = $42,000

Bonita Corporation Produces Only One Product