CSTR Sample Assessment 1 & 2

GeorgiaH

Hello,

Can anybody help me with task 7 on sample assessment 1 (question 8 on sample assessment 2)

I am really struggling to understand how to work out the margin of safety/margin of safety revenue and working it out as a percentage I have read over the answers over and over again but doesn't seem to help!

Any tips please?

Thanks

lishmh53

The margin of safety in units is the excess units after the break even point so in question 7 you have £14 variable costs per unit. £39.00 selling price means that after the variable costs (£14) you have a contribution per unit of £25.00. If fixed costs are £12 per unit based on 5000 the total fixed cost is £60000. so 60000/25 = 2400 BEP this is how many units you have to sell to cover the fixed costs.

The margin of safety is every unit produced after the BEP. so part C is 4000 units - BEP 2400= 1600.

the margin of safety as a % is : MOS in units/ forecasted 4000 units produced x100

1600/4000= .40 x100= 40%

part e) if a further 20k is added to the fixed costs of 60k the BEP in units is 80000/25= 3200BEP.
MOS in units is 5000- 3200= 1800
MOS % is 3200/ 5000 units produced x100 = 36%
MOS in revenue is 5000- 3200 = 1800 BEP units x £39.00 cost per item = 70200

GeorgiaH

Thanks for your help Happy to say I passed! now I only have 2 more exams to pass my level 3! yay