Clare Company Currently Sells 19,000 Units

question 185

Multiple Choice

Clare Company currently sells 19,000 units. Total fixed costs are $84,000, and the contribution margin per unit is $6.00. Clare's tax rate is 40%. The margin of safety in units is:

• A) 7,500 units
• B) 14,000 units
• C) 3,000 units
• D) 5,000 units

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Definitions:

Preferred Stock

Preferred stock is a class of shares that typically provides a fixed dividend and has priority over common stock in the event of a liquidation, but generally does not carry voting rights.

Deductible

An amount that can be subtracted from an individual's or organization's taxable income, thereby reducing the amount of tax owed.

Tax Deductible

Refers to a qualifying expense that can reduce an entity's taxable income, and thereby reduce its tax liability.

Dividends

Sum of money distributed by a corporation to those holding its shares, originating from the firm's earnings allocated among its stockholders.