The cost card for RTY Ltd.’s single product is shown below:

£

Direct material

6

Direct labour

4

Variable production overhead

2

Total variable cost

£12

Total fixed cost

£60,000

Budgeted sales are 20,000 units at a selling price of £20 per unit.

The margin of safety is:

Question

The cost card for RTY Ltd.’s single product is shown below:

£

Direct material

6

Direct labour

4

Variable production overhead

2

Total variable cost

£12

Total fixed cost

£60,000

Budgeted sales are 20,000 units at a selling price of £20 per unit.

The margin of safety is:

BlackTom AI · Accepted Answer

The question asks for the margin of safety for RTY Ltd.’s single product, given budgeted sales and cost structure. 
First, restate the key numbers: budgeted sales are 20,000 units at £20 each, so budgeted revenue is £400,000. Each unit has variable costs of £12 (£6 direct material + £4 direct labour + £2 variable overhead), leaving a contribution of £8 per unit (£20 selling price − £12 variable cost). 
Next, compute the break-even point in units: fixed costs are £60,000. Break-even units = fixed costs ÷ contribution per unit = £60,000 ÷ £8 = 7,500 units. 
Then, determine the margin of safety in units: 20,000 budgeted units − 7,500 break-even units = 12,500 units. 
Now convert to a margin of safety percentage relative to budgeted sales: 12,500 ÷ 20,000 = 0.625, i.e., 62.5%. 
Evaluating the provided options:
- Option 62.5%: This matches the calculated MOS percentage precisely, so it is correct. 
- Option 166.7%: This would imply a MOS greater than budgeted sales by more than the entire budget, which is illogical for a standard MOS calculation; it often arises from miscomputing break-even or misinterpreting units vs. revenue, so this is incorrect. 
- Option 40%: This would require a smaller MOS, likely due to an incorrect break-even calculation or unit mix; it does not fit the computed 62.5%. 
- Option 75%: Slightly off from 62.5%; again this would result from a miscalculation of either the contribution per unit or the break-even point. 
- Option 80%: Also inconsistent with the computed value, indicating a similar misstep in calculation. 
In summary, only 62.5% aligns with the correct MOS calculation using budgeted units, price, variable costs, and fixed costs.

LC Decision Making & Control 32181 Week 2 Quiz: Marginal Costing

The cost card for RTY Ltd.’s single product is shown below: £ Direct material 6 Direct labour 4 Variable production overhead 2 Total variable cost £12 Total fixed cost £60,000 Budgeted sales are 20,000 units at a selling price of £20 per unit. The margin of safety is:

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