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    Break even point & margin of safety

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    Small Fries is a company that processes gourmet potatoes into little french fries. Each package has a contribution margin of $2.50. Small Fries have total fixed costs of $40,000 each period. The selling price of one package is $5. Sales for the most recent period totaled $90,000.

    a. What is the company's breakeven point in units? In dollars?
    b. What was the company's margin of safety for the most recent period?
    c. What does the margin of safety represent?

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    Solution Preview

    a. What is the company's breakeven point in units? In dollars?

    Breakeven point in units is given as Fixed Costs/Contribution Margin per unit
    Contribution Margin = Selling Price - Variable Cost = 2.50
    Fixed Costs = ...

    Solution Summary

    The solution explains the calculation of break-even point and margin of safety.

    $2.49

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