During the current year Vanguard Company sold 80000 of its o

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?

Solution

Answer 1.

Number of units sold = 80,000
Selling Price = $60
Variable Costs per unit = $18

Actual Sales = Number of units sold * Selling Price
Actual Sales = 80,000 * $60
Actual Sales = $4,800,000

Margin of Safety Ratio = Margin of Safety / Number of units sold
Margin of Safety Ratio = 25,000 / 80,000
Margin of Safety Ratio = 31.25%

Answer 2.

Margin of Safety (units) = Number of units sold - Breakeven Point in units
25,000 = 80,000 - Breakeven Point in units
Breakeven Point in units = 55,000

Breakeven Point in units = Fixed Costs / (Selling price - Variable Costs per unit)
55,000 = Fixed Costs / ($60 - $18)
55,000 = Fixed Costs / $42
Fixed Costs = $2,310,000