During the current year, Vanguard Company sold 80,000 of its only product at a selling price of $60 per unit. Variable costs were $18 per unit, and Vanguard's margin of safety for the year was 25,000 units.Required:1) Calculate Vanguard's margin of safety ratio for the current year.2) What was the amount of Vanguard's fixed costs for the current year?
What will be an ideal response?
1) Margin of safety ratio = margin of safety ÷ actual sales
Margin of safety ratio = 25,000 ÷ 80,000 = 0.3125 = 31.25%
2) Vanguard's break-even sales in units were (80,000 ? 25,000) = 55,000 units
At the break-even point, total contribution margin = total fixed costs
Total contribution margin at break-even = 55,000 units × $42 contribution margin per unit = $2,310,000 = total fixed costs
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