Clare Company currently sells 19,000 units. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Clare's tax rate is 40%. The margin of safety in units is:
A) 7,500 units
B) 14,000 units
C) 3,000 units
D) 5,000 units

Question

Quizplus · Accepted Answer

The margin of safety in units is calculated as the difference between actual sales and break-even sales. Break-even sales in units = Total fixed costs / Contribution margin per unit = $84,000 / $6 = 14,000 units. Margin of safety = Actual sales - Break-even sales = 19,000 - 14,000 = 5,000 units.

Clare Company Currently Sells 19,000 Units