The following monthly data are available for Lumberyard Company. which produces only one product: Selling price per unit $42; Unit variable expenses $14; Total fixed expenses $42000; Actual sales for the month of June 3000 units. How much is the margin of safety for the company for June?
A) $42000
B) $63000
C) $84000
D) $1500

Question

Quizplus · Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-Even Sales). First, find the break-even point in units: Fixed Expenses / (Selling Price per Unit - Variable Expense per Unit) = $42,000 / ($42 - $14) = 1,500 units. Then, calculate break-even sales in dollars: 1,500 units * $42 = $63,000. Actual sales in dollars for June: 3,000 units * $42 = $126,000. Margin of Safety = Actual Sales - Break-Even Sales = $126,000 - $63,000 = $63,000.

The Following Monthly Data Are Available for Lumberyard Company