The output and costs of Zed Ltd are as follows:[table]
Budgeted output | 2,000 units Fixed costs | £3,000 Variable costs | £4 per unit Selling price | £10 per unit Target profit | £15,000
[/table]The number of units for the margin of safety is:

Question

BlackTom AI · Accepted Answer

Margin of safety = Budgeted (or actual) sales in units − Break‑even sales in units. Therefore compute contribution per unit and break‑even point first.

1. Relevant knowledge points and concepts
- Contribution per unit = Selling price − Variable cost per unit.
- Break‑even point (units) = Fixed costs ÷ Contribution per unit.
- Margin of safety (units) = Budgeted (or actual) units − Break‑even units.
(Target profit is used to compute required sales for a profit target, but it is not used in the margin of safety calculation.)

2. Step‑by‑step reasoning and intermediate calculations
- Selling price = £10 per unit.
- Variable cost = £4 per unit.
- Contribution per unit = £10 − £4 = £6 per unit.
- Fixed costs = £3,000.
- Break‑even units = Fixed costs ÷ Contribution per unit = £3,000 ÷ £6 = 500 units.
- Budgeted output = 2,000 units.
- Margin of safety (units) = Budgeted output − Break‑even units = 2,000 − 500 = 1,500 units.

3. Why the correct answer is correct
The margin of safety measures how many units sales can fall before the firm reaches its break‑even level (no profit, no loss). With a break‑even point at 500 units and budgeted sales of 2,000 units, the business has a 1,500‑unit buffer. The target profit (£15,000) is irrelevant to this particular margin‑of‑safety calculation.

4. Why the other options are incorrect
- 2,000 units: This is the budgeted output, not the margin of safety.
- 2,500 units: Exceeds the budgeted output; margin of safety cannot exceed budgeted sales.
- 500 units: This is the break‑even point, not the margin of safety.

5. Conclusion
The margin of safety in units is 1,500 units, which matches the provided correct answer.

The output and costs of Zed Ltd are as follows:[table] Budgeted output | 2,000 units Fixed costs | £3,000 Variable costs | £4 per unit Selling price | £10 per unit Target profit | £15,000 [/table]The number of units for the margin of safety is:单项选择题

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