Question

Exercise 5-8 Compute the Margin of Safety (LO5-7] 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 Variable expense per unit Fixed expense per month Unit sales per month $ $ $ 30 20 7,500 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? 1. Margin of safety (in dollars) 2. Margin of safety percentage

Answer 1

Solution

Margin of Safety in Dollars	$       7,500.00
Margin of safety percentage	25.00%

Working

A	Sales price	$             30.00
B	Variable cost per unit	$             20.00
C=A-B	Contribution per unit	$             10.00
D	Fixed cost	$       7,500.00
E=D/C	Breakeven Sales in units	750
F= E x A	Breakeven Sales in Dollars	$    22,500.00
G	Actual sales	$    30,000.00
H=G-F	Margin of Safety in Dollars	$       7,500.00
I=H/G	Margin of safety percentage	25.00%