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    atr2the1's Avatar
    atr2the1 Posts: 14, Reputation: 1
    New Member
    		  
    #1

    Mar 18, 2010, 02:40 AM
    Margin of Safety in units
    hi, I am very lost on this problem. It has no examples in the book to explain this. I have the answer to this problem but can figure how to get it. Hope someone can explain, can you give me some help on how to begin. Thanks

    The book explains MOS in dollars and MOS percentage.

    Problem: If the company want MOS to equal $40,000, it will need to sell about (in units):

    Sales... 3,600 units
    Selling price... $50 per unit
    Variable expense... $15 per unit
    Fixed expenses... $40,530

    Answer:
    a) 1,158 units
    b) 1,958 units, it should be this answer.
    c) 2,300 units
    d) 800 units

    Income Statement
    Sales: 180,000
    Variable exp 54,000
    CM 126,000
    Fix 40,530
    Net Inc (126,000 - 40,530) = 86,530

    CM Ratio: 0.7
    Break-even: (40,530 / 35) = 1158
    rehmanvohra's Avatar
    rehmanvohra Posts: 739, Reputation: 27
    Senior Member
    		  
    #2

    Mar 18, 2010, 10:52 PM

    Margin of Safety = (Actual Sales - Break Even sales) x Sales price per unit

    $40,000 = (x - 1158) x $50
    Now calculate for x and you get 1958 units
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