Day: October 16, 2021

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:

1. 13.6%
2. 20%
3. 24.2%
4. 30%

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. 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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