DTT makes one product. Annual sales of this product are 5,000 units and the margin of safety is 2,000 units. Total annual fixed costs are £150,000 and the variable cost per unit of production is £35. What is the selling price of each unit of product?

Question

Quizplus · Accepted Answer

The margin of safety is the difference between actual sales and break-even sales. With a margin of safety of 2,000 units and actual sales of 5,000 units, the break-even sales are 3,000 units. At break-even, total revenue equals total costs. Fixed costs are £150,000, and variable costs for 3,000 units are £105,000 (3,000 units x £35). Therefore, total costs at break-even are £255,000. To find the selling price per unit, divide total costs by break-even units: £255,000 / 3,000 units = £85.

DTT Makes One Product