Grimes Foods produces a gourmet salsa which sells for $28 per unit.Variable costs are $8 per unit,and fixed costs are $7,000 per month.If Grimes expects to sell 1,500 units,compute the margin of safety in dollars.

Question

Quizplus · Accepted Answer

A)
 11ea8870_3616_7f32_bb89_c13fbe263b7c_TB5025_00 Required sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Required sales in units = ($7,000 + 0) / $20 = 350 units
Margin of safety in units × Sales price per unit = Margin of safety in dollars
(1,500 units - 350 units) × $28 per unit = $32,200

Grimes Foods Produces a Gourmet Salsa Which Sells for $28