Gallup Foods produces a gourmet condiment that sells for $22 per unit
Variable cost is $8 per unit, and fixed costs are $6,000 per month. If Gallup expects to sell 2,000 units, compute the margin of safety in dollars. (Round any intermediate calculations to the nearest whole unit, and your final answer to the nearest dollar.)
A) $34,571
B) $1,571
C) $6,000
D) $12,571
A .A)
Sales price per unit $22
Less: Variable cost per unit (8 )
Contribution margin per unit $14
Breakeven sales in units = (Fixed costs + Target profit) / Contribution margin per unit
Breakeven sales in units = ($6,000 + 0 ) / $14 = 429 units
Margin of safety in units x Sales price per unit = Margin of safety in dollars
(2,000 units - 429 units) x $22 per unit = $34,571
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