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Margin of Safety Question

alexp19740alexp19740 New MemberRegistered Posts: 16
Hoping someone can help with this question:-
Z plc makes a single product which it sells for £16 per unit. Fixed costs are £76800 per month and the product has a contribution to sales ratio of 40%. In a period when budgeted sales were £224,000, what is the margin of safety in UNITS????


  • SandyHoodSandyHood Font Of All Knowledge Registered, Moderator Posts: 2,034
    In your exam remember you can ask your invigillator for paper to avoid trying to answer this type of question on-line.
    C/s ratio x Price = contribution per unit
    40% x £16 = £6.40 per unit

    Total fixed costs/contribution per unit = Break even units
    £76,800/£6.40 per unit = 12,000 UNITS

    Budgeted Sales Revenue/Price per unit = Budgeted sales units
    £224,000/£16 per unit = 14,000 units

    Budgeted Sales Units - Break even sales units = Margin of Safety
    14,000- 12,000 = 2,000 units
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  • alexp19740alexp19740 New Member Registered Posts: 16
    Thanks Sandy, much appreciated.
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