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	$	13
Fixed expense per month	$	11,480
Unit sales per month		970

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

Selling price per unit = $27

Variable expense per unit = $13

Fixed expense per month = $11,480

Contribution margin per unit = Selling price per unit - Variable expense per unit

= 27-13

= $14

Contribution margin ratio = Contribution margin per unit/ Selling price per unit

= 14/27

= 51.8518519%

Break even point ( Sales dollars) = Fixed cost/ Contribution margin ratio

= 11,480/51.8518519%

= $22,140

1.

Actual sales = Number of units sold x Selling price per unit

= 970 x 27

= $26,190

Margin of safety = Actual sales - Break even sales

= 26,190-22,140

= $4,050

2.

Margin of safety (%) = Margin of safety / Actual sales

= 4,050/26,190

= 15.46%

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