Question

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month’s budget appear below:

Selling price per unit	$	29
Variable expense per unit	$	15
Fixed expense per month	$	11,340
Unit sales per month		960

Required:

1. What is the company’s margin of safety? (Do not round intermediate calculations.)

2. What is the company’s margin of safety as a percentage of its sales? (Round your percentage answer to 2 decimal places (i.e. .1234 should be entered as 12.34).)

Answer 1

Ans. 1	Margin of safety in units = Actual sales in units - Break even sales in units
	960 - 810
	150 units
	Margin of safety in dollars = Actual sales in dollars - Break even sales in dollars
	$27,840 - $23,490
	$4,350
Ans. 2	Margin of safety percentage = Margin of safety / Sales * 100
	$4,350 / $27,840 * 100
	15.63%
	*WORKING NOTES :
	Contribution margin per unit = Selling price per unit - Variable cost per unit
	$29 - $15
	$14.00
	Break even point in unit sales =   Fixed cost / Contribution margin per unit
	$11,340 / $14
	810 units
	Break even point in dollar sales =   Break even in units * Selling price per unit
	810 * $29
	$23,490.00
	Actual sales in dollars   =   Sales in units * Selling price per unit
	960 * $29
	$27,840.00