Horner Company
Horner Company manufactures a single product.Each unit sells for $15.The firm's projected costs are listed below:
$\begin{array}{lc}
\text { Variable costs per unit: } & \
\text { Prochuction } & \$ 5 \
\text { SG\&A } & \$ 1 \
\text { Fixed costs: } & \
\text { Prochuction } & \$ 40,000 \
\text { SG\&A } & \$ 60,000\
\text { Estimated volume } & 20,000 \text { units }
\end{array}$

Refer to Horner Company.What is Horner's projected margin of safety for the current year?

Question

Horner Company
Horner Company manufactures a single product.Each unit sells for $15.The firm's projected costs are listed below:
$\begin{array}{lc}
\text { Variable costs per unit: } & \
\text { Prochuction } & \$ 5  \
\text { SG\&A } &  \$ 1 \
\text { Fixed costs: } &  \
\text { Prochuction } & \$ 40,000 \
\text { SG\&A } & \$ 60,000\
\text { Estimated volume } & 20,000 \text { units }
\end{array}$

Refer to Horner Company.What is Horner's projected margin of safety for the current year?

Quizplus · Accepted Answer

The margin of safety is the difference between the estimated sales and the breakeven sales. The breakeven sales can be calculated using the following formula:Breakeven sales = Fixed costs / (Selling price per unit - Variable cost per unit)In this case, the fixed costs are $40,000 + $60,000 = $100,000, the selling price per unit is $15, and the variable cost per unit is $5 + $1 = $6. Therefore, the breakeven sales are:Breakeven sales = $100,000 / ($15 - $6) = 20,000 unitsThe estimated sales are 20,000 units, so the margin of safety is:Margin of safety = Estimated sales - Breakeven salesMargin of safety = 20,000 units - 20,000 unitsMargin of safety = 0 unitsTherefore, the correct answer is A) $133,333.

Horner Company Horner Company Manufactures a Single Product Refer to Horner Company

Horner Company
Horner Company Manufactures a Single Product Refer to Horner Company