Question

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

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 $ 30 Variable expense per unit $ 14 Fixed expense per month $ 12,960 Unit sales per month 960 Required: 1. What is the company’s margin of safety? (Do not round intermediate calculations.)

Answer 1

Margin of safety = Current sales - Break even sales

Current sales = 960 units * $30

= $28,800

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

Contribution margin per unit = Selling price - variable expenses

= $30 - $14

= $16

Break even point in units = $12,960 / $16

= 810 units

Break even point in sales dollar = 810 units * $30

= $24,300

Margin of safety = $28,800 - $24,300

= $4,500