Using the data in Extract B, calculate the margin of safety - Edexcel - A-Level Business - Question 1 - 2018 - Paper 2

The contribution per unit is calculated as follows:

Contribution per unit = Selling price per unit - Variable cost per unit

Substituting in the values from Extract B:

Contribution per unit = £5 - £2 = £3

The break-even output can be calculated using the formula:

Break-even output = Total fixed costs / Contribution per unit

Substituting in the values:

Break-even output = £3,000,000 / £3 = 1,000,000 units

Now, to find the margin of safety:

Margin of safety = Actual output - Break-even output

Given actual output from Extract B is 1.5 million units:

Margin of safety = 1,500,000 units - 1,000,000 units = 500,000 units

Thus, the margin of safety is 500,000 units, or 0.5 million units.