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		$27	per unit
Variable expenses		$15	per unit
Fixed expenses		$10,560	per month
Unit sales		1,030	units per month

Required:
1.	Compute the company’s margin of safety. (Do not round intermediate calculations.)

      
  

2.	Compute 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

1. Compute margin of safety :

Break even point in units = Fixed cost/Contribution margin per unit

                                    = 10560/(27-15)

Break even point in units = 880 units

Break even point in dollars = 880*27 = 23760

Margin of safety in units = (Actual units sales-break even units sales) = (1030-880) = 150 units

Margin of safety in dollars = (actual sales-break even sales) = (1030*27-880*27) = 4050

2. Compute the company’s margin of safety as a percentage of its sales

Margin of safety percentage = Actual sales-break even sale/actual sales

                                         = (27810-23760)*100/27810

Margin of safety percentage = 14.56%