Question

Wang Co. manufactures and sells a single product that sells for $400 per unit; variable costs are $232 per unit. Annual fixed costs are $844,200. Current sales volume is $4,210,000. Compute the current margin of safety in dollars.

Answer 1

Answer:

Margin of safety= $2,200,000

Explanation:

Giving the following information:

Selling price= $400 per unit

variable costs= $232 per unit.

Annual fixed costs= $844,200.

Current sales volume is $4,210,000.

First, we need to calculate the break-even point in dollars:

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 844,200/ [(400 - 232)/400]

Break-even point (dollars)= $2,010,000

Now, we can calculate the margin of safety in dollars:

Margin of safety= (current sales level - break-even point)

Margin of safety= 4,210,000 - 2,010,000= $2,200,000