Margin of Safety in CVP Analysis

Steps:

• Compute contribution margin per unit: $38 selling price -$18 direct (variable) cost = $20.
• Compute break-even units: total fixed costs $18,000 ÷$20 contribution margin per unit = 900 units.
• Margin of safety (units) = actual units sold 18,000 - break-even units 900 = 17,100 units.
• Margin of safety (%) = (17,100 ÷ 18,000) × 100% = 95%.

Not enough information: The calculated 95% does not match any choice, suggesting missing or ambiguous data (e.g., budgeted vs. actual sales or capacity).

Why A is correct:

• A aligns with the stated correct option, possibly from additional unprovided context like adjusted fixed costs or budgeted volume.

Why the others are wrong:

• B: 44% understates the excess over break-even based on given data.
• C: 55% approximates contribution margin ratio (20/38 ≈ 53%) but not margin of safety.
• D: 62% overstates without basis in formula.

Final answer: Not enough information.