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Answer:
Margin of safety = 3190.922902 units rounded off to 3191 units
Explanation:
Margin of safety is the cushion or extra number of units that the business sells over the break even point in units. The break even point is the point where total revenue equals total cost and the business earns no profit or no loss. To calculate the margin of safety in units, we deduct the break even number of units from the budgeted number of units or sales.
Margin of safety = Budgeted units - Break even number of units
First we need to calculate the break even in units. The formula for break even in units is,
Break even in units = Fixed cost / (Selling price per unit - Variable cost per unit)
Break even in units = 9376 / (6.74 - 2.33)
Break even in units = 2126.077098 rounded off to 2126 units
Margin of safety = 5317 - 2126.077098
Margin of safety = 3190.922902 units rounded off to 3191 units
The margin of safety = 3190.922902 units rounded off to 3191 units
What is margin of safety?
The margin of safety is the cushion or extra number of units that the business sells over the break-even point in units. The break-even point is the point where total revenue equals total cost and also the business earns no profit or no loss. To calculate the margin of safety in units, we deduct the break-even number of units from the budgeted number of units or sales.
"The margin of safety = Budgeted units - Break-even number of units"
First, we'd like to calculate the break-even in units. The formula for break-even in units is,
Break-even in units = fixed charge / (Selling price per unit - Variable cost per unit)
Break-even in units = 9376 / (6.74 - 2.33)
Break-even in units = 2126.077098 rounded off to 2126 units
Margin of safety = 5317 - 2126.077098
The margin of safety = 3190.922902 units rounded off to 3191 units
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