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?

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Q: 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?

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

Steps: 8

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.