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	$	26
Variable expense per unit	$	13
Fixed expense per month	$	10,660
Unit sales per month		970

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

1) Margin of safety in dollars = Current sales – Breakeven sales

Margin of safety in units = Current sales units – Breakeven point

Break Even Point in Units = Fixed Cost / Sales Price per Unit – Variable Cost per Unit

                                                =10660/26-13=820 units

Break Even Point in Dollars = Sales Price per Unit * Break Even points in Units

                                                     = 26*820=21320

Margin of safety in dollars = 970*26-820*26

                                                   =3900

Margin of safety in units = 970-820=150

2) Margin of safety =   (Current sales level – breakeven point) / Current sales level X 100

                                      =(25220-21320)/25220*100

                                       =15.46%