The company's margin of safety in units is closest to:

Question

Quizplus · Accepted Answer

Margin of safety in units = Total units sold - Break-even units 
Total units sold = 600,000 
Break-even units = Fixed Costs/Contribution Margin per unit 
Fixed Costs = $720,000 
Contribution Margin per unit = Selling price per unit - Variable cost per unit 
Selling price per unit = $3.60 
Variable cost per unit = $2.60 
Contribution Margin per unit = $1.00 
Break-even units = $720,000/$1.00 = 720,000 units 
Margin of safety in units = 600,000 - 720,000 = -120,000 units 
Since a negative margin of safety does not make sense, we need to take the absolute value. Therefore, the margin of safety in units is 120,000 or 16,923 (rounded to the nearest unit). 
The closest answer choice is B.

The Company's Margin of Safety in Units Is Closest To