Explain what is meant by a margin of safety

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Reference no: EM133010260

Question - Jellybelly Ltd produces a single product. The projected income statement for the coming year is as follows:

Sales (35,000 units @ $20) $700,000

Total Variable Costs $(385,000)

Contribution Margin $315,000

Total Fixed Costs $(196,600)

Profit $118,400

Required -

a. Compute the break-even point in units and sales dollars. (Note: round to the nearest dollar).

b. Compute the new operating income if sales are 10 per cent higher than expected.

c. If the variable cost became $12 per unit, what would the new break-even amount be in units?

d. Explain what is meant by a margin of safety and what would this margin be if Jellybelly Ltd sold 30,000 units per year? (Note: use your answer from Part c.)

e. Explain the meaning of a 'relevant range' and given an example.

Reference no: EM133010260

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