Part 1The following are the September sales figures for Zina's Pizza: Expected Sales - 26,000 pizzas Selling Price - $20/each Ingredient Costs - $6/each Labour Costs - $1.50/each Other Variable Costs - $2.50/each Fixed Costs - $ 132,000 What is the Margin of Safety? A. 13,200 pizzas B. 2,600 pizzas C. 12,800 pizzas D. 18,235 pizzas

Question

Part 1The following are the September sales figures for​ Zina's Pizza: Expected Sales​ - 26,000 pizzas Selling Price​ - $20/each Ingredient Costs​ - $6/each Labour Costs​ - $1.50/each Other Variable Costs​ - $2.50/each Fixed Costs​ - $​ 132,000 What is the Margin of​ Safety? A. ​13,200 pizzas B. ​2,600 pizzas C. ​12,800 pizzas D. ​18,235 pizzas

BlackTom AI · Accepted Answer

To tackle the margin of safety, start by outlining what Margin of Safety (MOS) means in this context: it is how much actual or expected sales exceed the break-even sales, measured in units here.
First, compute the contribution per unit. Selling price per pizza is $20. Variable costs per pizza are: ingredients $6, labour $1.50, other variable costs $2.50. Total variable cost = 6 + 1.5 + 2.5 = $10. Therefore, contribution per unit = $20 − $10 = $10.
Next, find the break-even point in units. Break-even units = fixed costs / contribution per unit = $132,000 / $10 = 13,200 pizzas.
Now determine the Margin of Safety in units using the expected (actual) sales of 26,000 pizzas. MOS (units) = 26,000 − 13,200 = 12,800 pizzas.
With that computed, evaluate the given options:
- Option A: 13,200 pizzas. This value equals the break-even point, not the margin of safety. It would be MOS only if actual sales were 26,000 and break-even were 13,000, which is not the case here, so this is incorrect as MOS.
- Option B: 2,600 pizzas. This is far smaller than the MOS we calculated; it does not align with the actual difference between expected sales and break-even, so it is incorrect.
- Option C: 12,800 pizzas. This matches the MOS in units (26,000 − 13,200) and correctly represents the amount by which expected sales exceed break-even.
- Option D: 18,235 pizzas. This figure does not correspond to any standard MOS calculation here and seems arbitrary relative to the given data, so it is incorrect.
In summary, option C correctly reflects the Margin of Safety in units, while the others misinterpret MOS either as break-even, an arbitrary figure, or a different quantity entirely.

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