Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units.
If Narchie sells 24,000 units, its safety margin will be:

Question

Quizplus · Accepted Answer

Safety margin = (Current sales - Break-even sales) x Selling price per unitBreak-even sales = Fixed costs / (Selling price per unit - Variable cost per unit)Variable cost per unit = 60% of $50 = $30Break-even sales = $400,000 / ($50 - $30) = 20,000 unitsSafety margin = (24,000 - 20,000) x $50 = $200,000

Narchie Sells a Single Product for $50