Question

#7

price per Guit is $350, and everage cost percut $150 Horted expenses $135.000. Compute Susy with Amish quis on her website Suppose Suy expect to sell 1800 guits during the coming year Herve har man ofty in units outs). b. In wes dollars a percentage of expected Compulher margin of safety in t Beg by the he ther o b. Computer margin of safety in doors Bagi y g the one w's may or

Answer 1

a.

Margin of Safety (in units) = Expected Sales in Units - Break even Sales in Units

Margin of Safety (in units) = 1800-675 = 1125 quilts

Break even Sales in Units = Fixed Cost/Contribution Per Unit

Break even Sales in Units = 135000/(350-150)=675 quilts

b.

Margin of Safety (in dollars) = Expected Sales dollars - Break even Sales dollars

Margin of Safety (in dollars) = $630000-$236250 = $393750

c.

Margin of Safety (as a % of expected sales) = Margin of Safety (in dollars)/Expected Sales dollars

Margin of Safety (as a % of expected sales) = $393750/$630000 = 62.50%