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 $ 26 Variable expense per unit $ 17 Fixed expense per month $ 7650 Unit sales per month 1000 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

Answer :

1. Margin of safety(unit) =Total sales - Break even sales

= 1000 - 850

= 150 unit

Margin os safety ( $ ) = Margin of safety (unit)* sales per unit

= 150 unit * $ 26

= $ 3900

Break even sales = Fixed cost / contribution per unit

= $ 7650/ $ 9 = 850 unit

Working note -1

Contribution per unit = sales - variable cost

= $ 26- $ 17

= $ 9

2. Margin of safety as a percentage of its sales

= Margin of safety *100 / Total sales

= $ 3900*100 / $ 26*1000

= 15 %