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Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663

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BuyFindarrow_forward

Cornerstones of Cost Management (C...

4th Edition
Don R. Hansen + 1 other
Publisher: Cengage Learning
ISBN: 9781305970663
Chapter 16, Problem 26E
Textbook Problem
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Jester Company had unit contribution margin on $3.60 and fixed costs of $29,664. Income was $2,520. What was the margin of safety in units?

  1. a. 630
  2. b. 700
  3. c. 8,940
  4. d. 7,540

To determine

Identify the margin of safety.

Explanation of Solution

Margin of Safety: The break-even point projects the level of sales volume where there is no profit or loss incurred. Similarly, the volume of sales over and above this point is known as margin of safety.

Compute the margin of safety:

Margin of Safety =Estimated sales unitsBreak even units=8,940 units8,240 units=700 units

The margin of safety in units is 700 units.

Working Notes:

Compute the break-even units:

Break-even in Units =Fixed costPrice Variable Cost=$29,664$3.60=8,240 units

The break-even point in units is 8,240 units

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Chapter 16 Solutions

Cornerstones of Cost Management (Cornerstones Series)
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