Part 1The following are the September sales figures for Zina's Pizza: Expected Sales - 26,000 pizzas Selling Price - $20/each Ingredient Costs - $6/each Labour Costs - $1.50/each Other Variable Costs - $2.50/each Fixed Costs - $ 132,000 What is the Margin of Safety? A. 13,200 pizzas B. 2,600 pizzas C. 12,800 pizzas D. 18,235 pizzas

Question

Part 1The following are the September sales figures for​ Zina's Pizza: Expected Sales​ - 26,000 pizzas Selling Price​ - $20/each Ingredient Costs​ - $6/each Labour Costs​ - $1.50/each Other Variable Costs​ - $2.50/each Fixed Costs​ - $​ 132,000 What is the Margin of​ Safety? A. ​13,200 pizzas B. ​2,600 pizzas C. ​12,800 pizzas D. ​18,235 pizzas

BlackTom AI · Accepted Answer

To tackle the margin of safety, start by outlining what Margin of Safety (MOS) means in this context: it is how much actual or expected sales exceed the break-even sales, measured in units here.
First, compute the contribution per unit. Selling price per pizza is $20. Variable costs per pizza are: ingredients $6, labour $1.50, other variable costs $2.50. Total variable cost = 6 + 1.5 + 2.5 = $10. Therefore, contribution per unit = $20 − $10 = $10.
Next, find the break-even point in units. Break-even units = fixed costs / contribution per unit = $132,000 / $10 = 13,200 pizzas.
Now determine the Margin of Safety in units using the expected (actual) sales of 26,000 pizzas. MOS (units) = 26,000 − 13,200 = 12,800 pizzas.
With that computed, evaluate the given options:
- Option A: 13,200 pizzas. This value equals the break-even point, not the margin of safety. It would be MOS only if actual sales were 26,000 and break-even were 13,000, which is not the case here, so this is incorrect as MOS.
- Option B: 2,600 pizzas. This is far smaller than the MOS we calculated; it does not align with the actual difference between expected sales and break-even, so it is incorrect.
- Option C: 12,800 pizzas. This matches the MOS in units (26,000 − 13,200) and correctly represents the amount by which expected sales exceed break-even.
- Option D: 18,235 pizzas. This figure does not correspond to any standard MOS calculation here and seems arbitrary relative to the given data, so it is incorrect.
In summary, option C correctly reflects the Margin of Safety in units, while the others misinterpret MOS either as break-even, an arbitrary figure, or a different quantity entirely.

Quiz:eQuiz 3 (v25.2.1)

View Explanation

Log in for full answers

Similar Questions

In CVP analysis the margin of safety is the:

Question at position 25 A company makes a single product that it sells for $16 per unit. Fixed costs are $76,800 per month and the product has a contribution margin ratio of 40%. If the company's actual sales are $224,000, its margin of safety is:$32,000$192,000$128,000$96,000

The following information was taken from Wampler Co.'s contribution income statement: Sales $200,000 Variable costs 120,000 Fixed costs 60,000 Operating profit 20,000 What was Wampler's margin of safety percentage?

Simpson Manufacturing sells a product for $1,600 per unit. Fixed costs are $34,000, while the variable costs are $600 per unit. If the company has a 15% margin of safety, how many units were actually sold?

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:

The margin of safety is the amount by which sales can decrease before losses are incurred by the company.

Black Company's sales are $565,000, its fixed expenses are $150,000, and its variable expenses are 60% of sales. Based on this information, the margin of safety (number of sales dollars that can be safely lost) is:

More Practical Tools for International Students

Homework AI Solver

Stylized Writing Assistant

Plagiarism Checker Assistant

Citation Assistant

In-Class Translation Assistant

Class Notes Assistant

Quiz Search Assistant

Past Exam Questions by School

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler