The Mildmanner Corporation has the following data for 2016: The margin of safety in units will be (round to the nearest whole unit)

Question

The Mildmanner Corporation has the following data for 2016:  The margin of safety in units will be (round to the nearest whole unit)

Quizplus · Accepted Answer

Margin of safety in units = Actual sales – Break-even sales
To find actual sales:
Actual sales = Sales revenue ÷ Contribution margin ratio
Contribution margin ratio = Contribution margin ÷ Sales revenue
Given data:
Sales revenue = $400,000
Contribution margin ratio = 40%
Contribution margin = Sales revenue x Contribution margin ratio = $160,000
Break-even sales = Fixed expenses ÷ Contribution margin ratio
Fixed expenses = $300,000
Break-even sales = $300,000 ÷ 40% = $750,000
Actual sales = $400,000 ÷ 40% = $1,000,000
Margin of safety in units = $1,000,000 – $750,000 = $250,000 ÷ selling price per unit
Selling price per unit = $400,000 ÷ 5,000 units = $80
Margin of safety in units = $250,000 ÷ $80 per unit = 3,125 units
Round to the nearest whole unit = 2,500 units

The Mildmanner Corporation Has the Following Data for 2016