If the selling price per unit is $100 and the variable cost per unit is $60, wha

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Question: If the selling price per unit is $100 and the variable cost per unit is $60, what is the margin of safety in dollars if the break-even sales are $40,000?

Options:

$20,000
$30,000
$10,000
$15,000

Correct Answer: $20,000

Solution:

Margin of safety = Actual sales - Break-even sales. Actual sales = Selling price per unit * Number of units sold. If 1,000 units are sold, Actual sales = $100 * 1,000 = $100,000. Margin of safety = $100,000 - $40,000 = $60,000.

If the selling price per unit is $100 and the variable cost per unit is $60, wha

Practice Questions

If the selling price per unit is $100 and the variable cost per unit is $60, what is the margin of safety in dollars if the break-even sales are $40,000?

$20,000
$30,000
$10,000
$15,000

Questions & Step-by-Step Solutions

If the selling price per unit is $100 and the variable cost per unit is $60, what is the margin of safety in dollars if the break-even sales are $40,000?

Step 1: Identify the selling price per unit, which is $100.
Step 2: Identify the break-even sales, which is $40,000.
Step 3: Determine the number of units sold. For this example, we will assume 1,000 units are sold.
Step 4: Calculate the actual sales by multiplying the selling price per unit by the number of units sold: $100 * 1,000 = $100,000.
Step 5: Calculate the margin of safety by subtracting the break-even sales from the actual sales: $100,000 - $40,000 = $60,000.

Margin of Safety – The margin of safety measures the difference between actual sales and break-even sales, indicating how much sales can drop before a loss occurs.
Break-even Analysis – Break-even analysis determines the sales level at which total revenues equal total costs, resulting in neither profit nor loss.
Variable Costs – Variable costs are costs that change in direct proportion to the level of production or sales volume.
Selling Price – The selling price is the amount charged to customers for each unit of a product or service.

If the selling price per unit is $100 and the variable cost per unit is $60, wha

What’s inside this PDF?

If the selling price per unit is $100 and the variable cost per unit is $60, wha

Practice Questions

Questions & Step-by-Step Solutions

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