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	$	30
Variable expense per unit	$	20
Fixed expense per month	$	7,500
Unit sales per month		1,000

Required:

1. What is the company’s margin of safety?

2. What is the company’s margin of safety as a percentage of its sales?

Answer 1

1)	Margin of safety	=	Total Sales	-	Break even Sales
		=	1000	-	750
		=	250 Units
	Margin of safety	=	Margin of safety in units	*	Selling price per unit
		=	250	*	$    30.00
		=	$       7,500
	Working:
	Break even Sales	=	Fixed expense	/	(selling price per unit - Variable cost per unit)
		=	$ 7,500.00	/	(30-20)
		=	750
2)	Margin of safety	=	Margin of safety sales	/	Total Sales
		=	250	/	1000
		=	25%