Question

4. 2.00 points Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below Selling price $25 per unit $15 per uni $8,800 per month Foxed expenses Unit sales 1,030 units per month Required: 1 Compute the company's margin of safety (Do not round intermediate calculations) 2 Comoude the company's margn of safety les. Round your percentage answer to 2 decimal places (e 1234 should be entered as 12.34)

Answer 1

1. To compute the margin of safety, we must first compute the break-even unit sales.

Sales = Variable expenses + Fixed expenses + Profits

$25Q = $15Q + $8,800 + $0

$10Q = $8,800

Q = $8,800 ÷ $10 per unit

Q = 880 units

Margin of safety (in dollars) = Sales - Break-even sales

Margin of safety (in dollars) = (1,030 × $25) - (880 × $25)

Margin of safety (in dollars) = $25,750 - $22,000

Margin of safety (in dollars) = $3,750

2. Margin of safety as a percentage of sales = Margin of safety (in dollars) / Sales = $3,750 / $25,750 = 14.56%