A company that makes organic fertilizer has supplied the following data: The company's margin of safety in units is closest to:

Question

A company that makes organic fertilizer has supplied the following data:  The company's margin of safety in units is closest to:

Quizplus · Accepted Answer

Selling price per unit = $1,896,000 ÷ 240,000 units = $7.90 per unit
Variable expense per unit = ($804,000 + $180,000)÷ 240,000 units
= $984,000 ÷ 240,000 units = $4.10 per unit
Unit CM = Selling price per unit - Variable expenses per unit
= $7.90 per unit - $4.10 per unit = $3.80 per unit
Fixed expenses = ($520,000 + $270,000)= $790,000
Unit sales to break even = Fixed expenses ÷ Unit CM
= $790,000 ÷ $3.80 per unit = 207,895 units
Margin of safety = Total actual sales - Break-even sales
= 240,000 units - 207,895 units = 32,105

A Company That Makes Organic Fertilizer Has Supplied the Following