Margin of Safety Head-First Company plans to sell 5,150 bicycle helmets at $68 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 2,152. Required: 1. Calculate the margin of safety in terms of the number of units. 2. Calculate the margin of safety in terms of sales revenue.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Margin of Safety
Head-First Company plans to sell 5,150 bicycle helmets at $68 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 2,152.Required:
1. Calculate the margin of safety in terms of the number of units.
2. Calculate the margin of safety in terms of sales revenue.
Margin of safety is defined as sales more than the break even sales, hence if we have sales more than break even then we have margin of safety.
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