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, $84,000; Actual sales for the month of June, 4,000 units.How much is the margin of safety for the company for June?
A)$84,000
B)$42,000
C)$126,000
D)$1,000

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) = $84,000 / ($42 - $14) = 3,000 units. Actual sales = 4,000 units. Margin of safety in units = 4,000 - 3,000 = 1,000 units. In dollars, it is 1,000 units * $42 = $42,000.

The Following Monthly Data Are Available for Lumberyard Company