Question

The following monthly data are available for Lumberyard Company. which producesonly one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixedexpenses, $42,000; Actual sales for the month of June, 3,000 units. How much is themargin of safety for the company for June?

Answer 1

Answer:

margin of safety= 50%

Explanation:

Giving the following information:

Selling price per unit, $42.

Unit variable expenses, $14.

Total fixed expenses, $42,000

Actual sales for June, 3,000 units.

The formula for the margin of safety is:

Margin of safety= [(current sales level - break-even point)/current sales level]*100

First, we need to calculate the break-even point

break-even point= fixed costs / contribution margin

break-even point= 42000/(42-14)= 1500 units

margin of safety= (3000 - 1500/3000)*100= 50%