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



Selling price $27 per unit
Variable expenses $16 per unit
Fixed expenses $8,910 per month
Unit sales 960 units per month


Requirement 1:
Compute the company's margin of safety. (Omit the "$" sign in your response.)

Margin of safety $


Requirement 2:
Compute the company's margin of safety as a percentage of its sales. (Round your answer to the nearest whole percent. Omit the "%" sign in your response.)


Margin of safety as a percentage of sales %

Answer 1

Margin of safety = $4,050

Margin of safety as a percentage of sales % = 15.625

Step-by-step explanation:

Requirement 1:

Selling Price = 27

Variable cost = 16

Contribution per unit = $27 - $16

= $11

Fixed cost = $8,910

Break even sales:

= (Fixed cost ÷ Contribution per unit) ÷ Selling price per unit

= (8,910 ÷ 11) × 27

= 21,870

Expected Sales = Units sold per month × Selling price per unit

= 960 × 27

= 25,920

Margin of safety = Expected Sales – Break even sales

= 25,920 - 21,870

= 4,050

Margin of safety = $4,050

Requirement 2:

Margin of safety ratio = (Margin of Safety ÷ Expected sales) × 100

= (4,050 ÷ 25,920) × 100

= 15.625

Margin of safety as a percentage of sales % = 15.625