The following monthly data are available for the Eager Company and its only product:
$\begin{array}{|l|r|}
\hline \text { Unit sales price } & \$ 75 \
\hline \text { Unit variable expenses } & \$ 30 \
\hline \text { Total fixed expenses } & \$ 180,000 \
\hline \text { Actual sales for the month of March } & 7,000 \text { units } \
\hline
\end{array}$
What was the margin of safety for the company for March?
A) $315,000.
B) $225,000.
C) $135,000.
D) $495,000.

Question

Quizplus · Accepted Answer

The margin of safety is calculated as (Actual Sales - Break-Even Sales). First, find the break-even point in units: Fixed Expenses / (Unit Sales Price - Unit Variable Expenses) = $180,000 / ($75 - $30) = $180,000 / $45 = 4,000 units. Then, calculate the break-even sales in dollars: 4,000 units * $75 = $300,000. Actual sales in dollars for March: 7,000 units * $75 = $525,000. Margin of Safety = Actual Sales - Break-Even Sales = $525,000 - $300,000 = $225,000.

The Following Monthly Data Are Available for the Eager Company