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 $ 17 Fixed expense per month $ 8,900 Unit sales per month 1,040 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

Answer :-

Break even point in units = Fixed expense / CM per unit

Break even point in units = $8,900 / ($27 - $17)

Break even point in units = 890 units

Break even point in dollar sales = 890*$27 = $24,030

1. Margin of Safety = Actual sales - Break even sales

Margin of Safety = (1,040*$27) - $24,030 = $4,050

2. Margin of Safety as a percentage of its sales = Margin of safety / Actual sales

Margin of Safety as a percentage of its sales = $4,050 / $28,080 = 14.42%

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