If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 14,500 units.

Question

Quizplus · Accepted Answer

The margin of safety is the difference between the actual sales and the sales at the break-even point, expressed as a percentage of actual sales. In this case, the margin of safety is:

$3,000,000 - $2,500,000 = $500,000
$500,000/$3,000,000 = 0.1667 or 16.67%

To find the margin of safety in units, we need to divide the dollar value of the margin of safety by the unit selling price:

$500,000/$40 = 12,500 units

Therefore, the statement in the question is false. The margin of safety is 12,500 units, not 14,500 units.

If the Unit Selling Price Is $40, the Volume of Sales