Smith company produces desk lamps. the information for june indicated that the selling price was $25 per unit, variable costs were $15 per unit, and fixed costs totaled $6,000. smith currently sells 1,100 lamps and warns $5,000 of profit. how much is smith’s margin of safety in dollars

45.5%

Explanation:

Given that,

Selling price = $25 per unit

Variable costs = $15 per unit

Fixed costs = $6,000

Currently sells = 1,100 lamps

Warns $5,000 of profit

Break even point in sales dollars:

Break even point in units =

                                          = 600 units

Break even point in sales dollars:

= 600 × $25

= $15,000

Margin of safety:

= Current sales - break even sales

= ($25 × 1,100) - $15,000

= $12,500

The Margin of safety ratio is then calculated by dividing the margin of safety in dollars by actual sales:

=

= 45.5%

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