During the current year,Fairview Corporation sold 100,000 units of its product for $20 each.The variable cost per unit was $14,and Fairview's margin of safety was 40,000 units.What was the amount of Fairview's total fixed costs?
A) $240,000
B) $560,000
C) $840,000
D) $360,000

Question

Quizplus · Accepted Answer

Margin of safety = Actual units sold - Break-even units

40,000 = 100,000 - Break-even units

Break-even units = 60,000

Total revenue = 100,000 x $20 = $2,000,000
Total variable cost = 100,000 x $14 = $1,400,000
Contribution margin = Total revenue - Total variable cost = $600,000
Contribution margin ratio = Contribution margin / Total revenue = 30%

Break-even sales = Total fixed costs / Contribution margin ratio

$2,000,000 x 30% = Total fixed costs

Total fixed costs = $600,000

Therefore, the amount of Fairview's total fixed costs was $360,000 (Option D).

During the Current Year,Fairview Corporation Sold 100,000 Units of Its