FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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  1. Margin of Safety

    Head-First Company plans to sell 5,150 bicycle helmets at $68 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Break-even units equal 2,152.

    Required:

    1.  Calculate the margin of safety in terms of the number of units.

    2.  Calculate the margin of safety in terms of sales revenue.

 
Expert Solution
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Step 1

Margin of safety is defined as sales more than the break even sales, hence if we have sales more than break even then we have margin of safety.

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