The following monthly data are available for Heffernan, Inc. which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $42,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June?
A) $70,000
B) $105,000
C) $63,000
D) $2,500

Question

Quizplus · Accepted Answer

The margin of safety is calculated as actual sales minus break-even sales. Break-even sales in units = Total fixed expenses / (Selling price per unit - Unit variable expenses) = $42,000 / ($42 - $14) = 1,500 units. Break-even sales in dollars = 1,500 units * $42 = $63,000. Actual sales in dollars = 4,000 units * $42 = $168,000. Margin of safety = $168,000 - $63,000 = $105,000.

The Following Monthly Data Are Available for Heffernan, Inc