A product has a selling price of $25 and variable costs of $15. If fixed costs a

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Question: A product has a selling price of $25 and variable costs of $15. If fixed costs are $10,000, what is the margin of safety if 1,200 units are sold?

Options:

$6,000
$4,000
$8,000
$2,000

Correct Answer: $6,000

Solution:

Margin of safety = (Actual sales - Break-even sales) = (1,200 * $25) - ($10,000 / ($25 - $15)) = $30,000 - $10,000 = $20,000

A product has a selling price of $25 and variable costs of $15. If fixed costs a

Practice Questions

A product has a selling price of $25 and variable costs of $15. If fixed costs are $10,000, what is the margin of safety if 1,200 units are sold?

$6,000
$4,000
$8,000
$2,000

Questions & Step-by-Step Solutions

A product has a selling price of $25 and variable costs of $15. If fixed costs are $10,000, what is the margin of safety if 1,200 units are sold?

Step 1: Identify the selling price of the product, which is $25.
Step 2: Identify the variable costs of the product, which are $15.
Step 3: Calculate the contribution margin per unit by subtracting variable costs from the selling price: $25 - $15 = $10.
Step 4: Identify the fixed costs, which are $10,000.
Step 5: Calculate the break-even sales in units by dividing fixed costs by the contribution margin per unit: $10,000 / $10 = 1,000 units.
Step 6: Identify the actual sales in units, which is 1,200 units.
Step 7: Calculate actual sales in dollars by multiplying the number of units sold by the selling price: 1,200 * $25 = $30,000.
Step 8: Calculate the margin of safety by subtracting break-even sales in dollars from actual sales in dollars: $30,000 - $10,000 = $20,000.

Margin of Safety – The margin of safety measures how much sales can drop before a business reaches its break-even point.
Break-even Analysis – Calculating the break-even point helps determine the minimum sales needed to cover costs.
Variable and Fixed Costs – Understanding the difference between variable costs (costs that change with production volume) and fixed costs (costs that remain constant regardless of production volume) is crucial for financial analysis.

A product has a selling price of $25 and variable costs of $15. If fixed costs a

What’s inside this PDF?

A product has a selling price of $25 and variable costs of $15. If fixed costs a

Practice Questions

Questions & Step-by-Step Solutions

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