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Parsley Corporation is a wholesaler that sells a single product and maintains a stable cost structure....

Parsley Corporation is a wholesaler that sells a single product and maintains a stable cost structure. Management has provided the following data.

May June July

Selling price per unit 176 176 176

Sales units 4,000 7,000 6,000

Net operating income (Loss) 26,700 422,700

Gross margin 450,700 882,700

the best estimate of the margin of safety in july at the sales volume above is:

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Answer #1
May June July
Selling price 176 176 176
Sales in units 4000 7000 6000
Sales in amount 704000 1232000 1056000
Net operating incomee 26700 422700
Total cost (sales--net operating income   677300 809300

To find variable cost per unit= change in total cost/ change in no. Of units

=(809300-677300)/(7000-4000)

=44 per unit

Fixed cost= 677300- 44*4000= 501300

So, in the month of july

Contribution p.u= 176-44= 132 per unit

Break even point = fixed cost/ contribution per unit

=501300/132=3798 units approx

Margin of safety sales =sales- break even sales

=6000- 3798=2202 units

Do give your feedback! Happy learning :) :)

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