0 Required information Problem 323A Comprehensive CVP analys

0 Required information Problem 3-23A Comprehensive CVP analysis LO 3-3, 3-4, 3-5 [The following information applies to the questions displayed below.] Trevino Company makes and sells products with variable costs of $24 each. Trevino incurs annual fixed costs of $315,000. The current sales price is $87 Problem 3-23A Part g g. Assume that Trevino concludes that it can sell 10,000 units of product for $80 each. Recall that variable costs are $30 each and fixed costs are $280,000. Compute the margin of safety in units and dollars and as a percentage. Answer is complete but not entirely correct. 4,400 Margin of safety in units Margin of safety in dollars Margin of safety 448,000 44 %

Solution

Solution: Break-even point = (Fixed costs x sales ) / ( Contribution margin)

= (280,000 x 800,000 ) / 500,000

= $448,000

Margin of safety = (Sales - Breakeven sales ) / Sales = (800,000 - 448,000) / 800,000

= 352,000 /800,000

= 44%

Margin of safety in dollars = sales x 44%

= 800,000 x 44% = $352,000

Margin of safety in units = $352,000 / 80 = 4,400 units