
The information relates to the production of 50,000 units of a product.
- selling price — £25 per unit
- variable costs — £15 per unit
- contribution — £10 per unit
The fixed costs are £300,000.
The unit selling price is increased by 10%.
What is the increase in the margin of safety?
Select ONE answer:
- 13.6%
- 20%
- 24.2%
- 30%
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 4
- Not correct
- Not correct
- Not correct
- Correct – £300,000 / £10 = 30,000 units ==> SP £25 * 10% = £27.50 ==> CM £12.5 ==> £300,000 / 12.5 = 24,000 units ==> (50-24 / 50) = 0.52 / (50-30 / 50) = 0.4 ==> 0.52 / 0.4 = 30%
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