Margin of safety

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 February 2012 The selling price of a product is ` 9 per unit with variable cost of ` 6 each and the fixed costs are ` 54000 per month. In a period when actual sales are ` 180000, the margin of safety in units is -

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
Follow

08 February 2012 MOS = Total Sales - Break even sales

Here,
Sale Price Per Unit = Rs.9
Total Units Sold= (Rs 180000/9)= 20000 units.
Variable Cost = Rs 6 per unit.

Contribution per unit= (9-6)=Rs 3 per unit.

Break even sales is sales where contribution is just enough to meet the fixed cost.

Fixed Cost here is Rs 54000/-
So, No of Units to be sold to Break Even= (Rs 54000/3)=18000 units.

So, Margin of safety=(20000-18000) = 2000 units.

It means company will start earning profit when its sales go beyond 18000 units.

Jatin Agrawal

Jatin Agrawal (Expert)
Follow

08 February 2012 d contribution is 9-6=3. so BRP in units is 54000\3=18000 units, whereas actual units sold is 20000 units(180000/9)

since we have sold 2000 more units then the amt. required to breakeven, these excess units sold i.e. 2000 units is Margin of safet(in units).

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now