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?
Practice Questions
1 question
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?
$100,000
$80,000
$60,000
$40,000
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.
Questions & Step-by-step Solutions
1 item
Q
Q: 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?
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.
Steps: 5
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.
