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 $ 26 Variable expense per unit $ 18 Fixed expense per month $ 6,960 Unit sales per month 1,020 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

Income statement

Sales(1020×$26)	$26520
(-) variable expenses(1020×$18)	($18360)
Contribution margin	$8160
(-) fixed expenses	($6960)
Net operating income	$1200

P/v ratio /contribution margin ratio= contribution margin/sales×100

= $8160/$26520×100

= 30.77%

1)Margin of safety = profit/p/v ratio

= $1200/30.77%

= $3899.90

2) margin of safety as a percentage of sales

= $3899.90/$26520×100

= 14.70%

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