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	$	24
Variable expense per unit	$	12
Fixed expense per month	$	9,600
Unit sales per month		950

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

Statement Showing Contribution per unit and Total profit

Description	Amount
Selling Price Per Unit	$24
Less: Variable Cost Per Unit	$12
Contribution Per Unit (a)	$12
Number of Units Sold (b)	950 units
Total Contribution c = ( a x b)	$11400
Less: Fixed Cost	$9600
Profit	$1800
P/V Ratio = ( Contribution Per Unit / Sell Price Per Unit)	0.5

(1) Margin Of Safety Sales in Units = Total Profit / Contribution Per Unit = $1800 / $12 per Unit = 150 units

Margin Of Safety Sales In Amounts = Total Profit / P/v Ratio = $1800/0.5 = $3600

(2)

Margin Of Safety as Percentage Of Sales in Units = (150Units / 950 Units ) X 100 = 15.79%

Margin Of Safety as Percentage Of Sales in Amounts = ( $3600 / $22800 ) X 100 = 15.79%