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Comprehensive Report: Break$-$Even Analysis and Margin of Safety

$1.$ Break$-$Even Analysis:

a$)$ Calculation of Break$-$Even Point:

Formula of Break$-$Even Point $($in units$)$:

Break$-$Even Point $($in units$)=$ Total Fixed Costs

Selling Price per Unit$$Variable Cost per Unit

Given:

Selling Price $($S$)=$$$5$

Variable Cost $($VC$)=$$$2$

Total Fixed Costs $=$$$300,000$

Break$-$Even Point $=$$$300,000$

$$5$$$2$

$=$$$300,000$

$$3$

$=100,000$ units

b$)$ Calculation of Target Profit:

Given:

Target Profit $=$$$200,000$

Target profit $($in units$)=$ Total Fixed Cost $+$ Target Profit

Selling Price Per Unit $$ Variable Cost Per Unit

Target Profit $=$$$300,000+$$$200,000$

$$5$$$2$

$=$$$500,000$

$$3$

$=166,667$ units

$2.$ Margin of Safety:

Explanation:

The gap between the breaking point and the real or forecast amount of sales is known as the margin of safety. It shows the maximum sales decline that a business can experience before losing money.

The formula for Margin of Safety:

Margin of Safety$=$Actual Sales$$Break$-$Even Sales Actual Sales$\backslash$times $100\%$

For Global Foods Inc.:

Actual Sales $=$ Target Profit Sales $=166,667$ units

Break$-$Even Sales $=100,000$ units

The margin of Safety$=166,667100,000\backslash$times $100\%$

$166,667$

$=66,667\backslash$times $100\%$

$166,667$

Margin of safety $=40\%$

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