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	$	19
Fixed expense per month	$	4,860
Unit sales per month		960

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

1.

Break even point in units = Fixed expenses / Contribution margin

Break even point in units = $4,860 / ($25-$19)

Break even point in units = 810 Units

Margin of safety = Actual Sales - Break even point

Margin of safety = (960*$25) - (810*$25)

Margin of safety = $3,750

2.

margin of safety as a percentage of its sales = Margin of safety / Actual sales

margin of safety as a percentage of its sales = $3,750 / (960*$25)

margin of safety as a percentage of its sales = 15.63%

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