ACCA PM · Chapter 5 · Question 4 of 10
Kappa Co sells two products in the constant unit ratio of 3 units of A to 2 units of B. Product A sells for $20 with variable cost of $12 per unit. Product B sells for $30 with variable cost of $15 per unit. Fixed costs are $186,000 per period. Budgeted sales revenue, in the standard mix, is $500,000. What is the margin of safety as a percentage of budgeted sales (to one decimal place)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 17.3%
Explanation
Breakeven revenue = $186,000 / 0.45 = $413,333. Margin of safety = ($500,000 - $413,333) / $500,000 = 17.3%. The margin of safety is always expressed relative to budgeted sales, not breakeven sales.
More Cost-volume-profit analysis MCQs
- Q6A company prepares a multi-product profit-volume chart that plots each product individually. In what order should the products be plotted?
- Q7Which of the following is an assumption underlying multi-product cost-volume-profit analysis?
- Q8On a traditional breakeven chart, which of the following is true?
- Q9A company sells two products. Product M has a contribution to sales ratio of 30% and product N a ratio of 55%. If the sales mix shifts…
- Q10A single-product company sells its product for $45 with variable cost of $27 per unit. Fixed costs are $108,000 and budgeted sales are…