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 $ 27 Variable expense per unit $ 13 Fixed expense per month $ 12,460 Unit sales per month 1,040 Required: 1. What is the company’s margin of safety?

Answer 1

Margin of safety in units 1040 - 890 = 150

Margin of safety in dollars 28,080 - 24,030 = 4050

Margin of safety as % of sales 4050 / 28,080 = 14.4231%

Step-by-step explanation:

`Sales \: Revenue - Variable \: Cost = Contribution \: Margin`

27 - 13 = 14

`(Fixed\:Cost)/(Contribution \:Margin) = Break\: Even\: Point_(units)`

12460 / 14 = 890

`BEP_(units) * unit \: sales \: price = BEP_(dolars)`

890 * 27 = 24,030

`units sold * unit \: sales \: price = Sales Revenue`

1,040 * 27 = 28,080

`units \:sold - BEP_{units`

Margin of safety in units 1040 - 890 = 150

`current \:sales - BEP_(USD)`

Margin of safety in dollars 28,080 - 24,030 = 4050

`(current \:sales - BEP_(USD))/(current \:sales) * 100 = margin \: of \: safety`

Margin of safety as % of sales 4050 / 28,080 = 14.4231%