A manufacturer of premium wire strippers has supplied the following data: The company's margin of safety in units is closest to:

Question

A manufacturer of premium wire strippers has supplied the following data:  The company's margin of safety in units is closest to:

Quizplus · Accepted Answer

Contribution margin = Sales - Variable expenses
= $2, 448, 000 - ($1, 258, 000 + $306, 000)
= $2, 448, 000 - $1, 564, 000 = $884, 000
Unit CM = Contribution margin ÷ Unit sales
= $884, 000 ÷ 340, 000 units = $2.60 per unit
Unit sales to break even = Fixed expenses ÷ Unit CM
= ($716, 000 + $124, 000)÷ $2.60 per unit
= $840, 000 ÷ $2.60 per unit = 323, 077 units
Margin of safety in units = Total budgeted (or actual)sales - Unit sales to break even
= 340, 000 units - 323, 077 units = 16, 923 units

A Manufacturer of Premium Wire Strippers Has Supplied the Following