Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 26

Franklin Cards sells greeting cards for $2 each and plans to sell 100,000 cards every quarter. The accounting manager has determined the company must sell 80,000 cards every quarter to break even. What is the margin of safety in units and sales dollars?

Step 1 of 2

The margin of safety is the amount by which the revenue exceeds breakeven revenue. In terms of unit margin of safety is a difference between the sales quantity and the breakeven quantity.

The breakeven point is a point where forecasted revenue matches the estimated total costs. It is the quantity of output sold at which total revenue equals total cost. It is a point where there is no profit or loss.