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 $ 25 Variable expense per unit $ 15 Fixed expense per month $ 8,600 Unit sales per month 1,010 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

1. Margin Of Safety(MOS)

We are given,

Selling Price= $25/unit

Variable cost=$15/unit

Fixed Cost=$ 8,600/month

Sales units= 1,010/month

Budgeted Sales= $25,250(25*1010)

Margin Of Safety= Budegeted sales- Break even point sales

Break even point sales= (Fixed Costs*Sales)/(Sales- Variable cost)

= (8,600*25,250) / (25,250-15,150)

=$ 21,500

Therefore, Margin of safety= Budegeted sales- Break even point sales

=25,250-21,500

= $3,750

MOS is a positive figure , ie, $3,750.

2. Company's margin of safety as a percentage of sales:

= (Margin Of Safety / Sales )* 100

= (3,750/25,250)*100

=14.85%