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A product has a selling price of $80 and a variable cost of $50. What is the mar

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Question: A product has a selling price of $80 and a variable cost of $50. What is the margin of safety if the break-even sales are $200,000?

Options:

  1. $100,000
  2. $80,000
  3. $60,000
  4. $40,000

Correct Answer: $100,000

Solution: 

Margin of Safety = Actual Sales - Break-even Sales. Actual Sales = Selling Price * Number of Units Sold. If we assume 4,000 units sold, Actual Sales = $80 * 4,000 = $320,000. Margin of Safety = $320,000 - $200,000 = $120,000.

A product has a selling price of $80 and a variable cost of $50. What is the mar

Practice Questions

Q1
A product has a selling price of $80 and a variable cost of $50. What is the margin of safety if the break-even sales are $200,000?
  1. $100,000
  2. $80,000
  3. $60,000
  4. $40,000

Questions & Step-by-Step Solutions

A product has a selling price of $80 and a variable cost of $50. What is the margin of safety if the break-even sales are $200,000?
  • Step 1: Identify the selling price of the product, which is $80.
  • Step 2: Identify the break-even sales, which is $200,000.
  • Step 3: Assume a number of units sold. For this example, we will assume 4,000 units.
  • Step 4: Calculate the actual sales by multiplying the selling price by the number of units sold: $80 * 4,000 = $320,000.
  • Step 5: Calculate the margin of safety by subtracting the break-even sales from the actual sales: $320,000 - $200,000 = $120,000.
  • Margin of Safety – The difference between actual sales and break-even sales, indicating how much sales can drop before a loss occurs.
  • Break-even Analysis – Determining the sales level at which total revenues equal total costs, resulting in neither profit nor loss.
  • Variable Costs – Costs that change in proportion to the level of sales or production.
  • Selling Price – The price at which a product is sold to customers.
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