1. To compute the margin of safety, we must first compute the break-even
unit sales.
Sales = Variable expenses + Fixed expenses + Profits
$30Q = $20Q + $7,500 + $0
$10Q = $7,500
Q = $7,500 ÷ $10 per unit
Q = 750 units
Sales (at the budgeted volume of 1,000 units) .... $30,000
Break-even sales (at 750 units) ... 22,500
Margin of safety (in dollars) ... $ 7,500
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