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 Variable expense per unit Fixed expense per month Unit sales per month $ 26 $ 17 $ 7,200 950 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).) 1. Margin of safety in dollars) 2. Margin of safety percentage

Answer 1

Break-even point in units = Fixed expenses / ( Selling price per unit - Variable expenses per unit ) = 7200 / ( 26 - 17 )	800
Break-even point in dollars = Break-even point in units * Selling price per unit = 800 * 26	20800
Sales in dollars = Unit sales * Selling price per unit = 950 * 26	24700

Req 1 :
Margin of safety (in dollars) = Sales in dollars - Break even point in dollars = 24700 - 20800	3900
Req 2 :
Margin of safety percentage = ( Sales in dollars - Break even point in dollars ) / Sales in dollars = ( 24700 - 20800 ) / 24700	15.79%