Accounting
Larry sells each unit for $500. Variable costs per unit equal $300. Totalfixed costs equal $800,000. Larry is currently sellig 5,000 units per period and would like to earn net income of $400,00.
comput: Break-evn point indollras, sales units necessary to attain desired income, and margin of safety ration for current operations.
I have break-even point: 4000
Desired sales: 204
Margin of safety? not sure where to go from here.
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Answers
The margin of safety ratio is the difference between the break-even point and the desired sales level divided by the desired sales level. In this case, the margin of safety is (5000-4000)/5000 = 20%. This means that Larry needs to increase sales levels by 20% in order to achieve the desired income level of $400,000.
