Lush Lawn, Inc. produces and sells electric lawn trimmers for $120 each. The variable costs of each mower total $80 while total monthly fixed costs are $6,000. Current monthly sales are $48,000. Required:1) Compute the company's current break-even point in units and dollars.2) What is the company's current margin of safety in units, dollars, and percentage?
What will be an ideal response?
1) Break-even point in units: $6,000 ÷ ($120 - $80) = 150 units; Break-even point in dollars: 150 × $120 = $18,000
2) Margin of safety in units: ($48,000 ÷ $120) - 150 = 400 - 150 = 250 units
Margin of safety in dollars ($48,000 - $18,000) = $30,000
Margin of safety ratio: $30,000 ÷ $48,000 = 62.5%
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