Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000.
-Compute the current margin of safety in dollars for Flannigan Company.

Question

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. 
-Compute the current margin of safety in dollars for Flannigan Company.

Quizplus · Accepted Answer

Margin of safety = (Current sales - Break-even sales)Break-even sales = Fixed costs / (Selling price per unit - Variable cost per unit)Break-even sales = $800,000 / ($450 - $270) = $2,285,714.29Margin of safety = $4,200,000 - $2,285,714.29 = $1,914,285.71

Flannigan Company Manufactures and Sells a Single Product That Sells