# Margin of safety

Data concerning next month's budget:

Selling price $26 per unit

Variable expenses $14 per unit

Fixed expenses $10,200 per month

Unit sales 1,000 units per month

A. Compute the company's margin of safety $

B. Compute the company's margin of safety as a percentage of its sales

https://brainmass.com/business/profit-margin/margin-safety-385074

## SOLUTION This solution is **FREE** courtesy of BrainMass!

Margin of safety

Data concerning next month's budget:

Selling price $26 per unit

Variable expenses $14 per unit

Fixed expenses $10,200 per month

Unit sales 1,000 units per month

A. Compute the company's margin of safety $

Breakeven in units = Fixed expenses/(Selling price - Variable expenses)

= $10,200/($26 - $14) = 850 units

Margin of safety in units = Actual sales in units - Breakeven in units

= 1,000 units - 850 units = 150 units

Margin of safety $ = 150 units x $26 = $3,900

B. Compute the company's margin of safety as a percentage of its sales

Margin of safety percentage = margin of safety in dollars/total budgeted sales

Margin of safety percentage = $3,900/(1,000 units x $26)

Margin of safety percentage = 0.15 or 15%

https://brainmass.com/business/profit-margin/margin-safety-385074