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 $ 29 Variable expense per unit $ 14 Fixed expense per month $ 12,450 Unit sales per month 980 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. 0.1234 should be entered as 12.34).)

Answer 1

a) $4,350 b) 15.31%

Step-by-step explanation:

a) Units sold per month = 980

Unit selling price = $29

Variable cost per unit = $14

Monthly fixed cost= $12,450

The formula for Margin of safety

= Actual sales –Break-even sales

Total monthly sales = 980 * $29 = $28,420

Break-Even sales (units) = FC / (SP- VC) FC = Fixed cost

= $12,450/ (29-14) SP - Selling price

= $12,450 / 15 VC = Variable cost

= 830 units

Break-even sales in $ = 830 * $29 = $24,070

Margin of safety = Actual sales –Break-even sales

= $ 28,420 - $24,070

= $ 4,350

b) Margin of safety as a % of sales

= ($ 4,350 / $ 28,420) * 100

= 15.31%