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28 February, 09:32

Margin of Safety Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Break-even units equal 1,650. Required: 1. Calculate the margin of safety in terms of the number of units. units 2. Calculate the margin of safety in terms of sales revenue. $

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  1. 28 February, 09:54
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    Margin of safety - Units = 3350

    Margin of safety - Sales Revenue = $251250

    Explanation:

    Margin of Safety indicates how much sales may decrease before a loss can be made.

    Margin of safety - Units

    Margin of safety - Units = 5000-1650 = 3350

    Margin of Safety as a % = 3350/5000 * 100 = 67%

    Margin of safety - Sales Revenue

    Expected Sales = (5000 * $75) = $375000

    Margin of Safety = $375000 * 67% = $251250
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