Question

Exercise 3-8 Compute the Margin of Safety [LO3-7] Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below: Selling price Variable expenses $27 per unit S16 per unit $9.680 per month 1.030 units per month Unit sales Required: 1. Compute the company's margin of safety. (Do not round intermediate calculations.) Margin of safety 2. Compute the company's margin of safety as a percentage of its sales. (Round your percentage answer to 2 decimal places (ie 1234 should be entered as 12.34). Margin of safety %

Answer 1

Answer- 1)- Margin of safety =150 units

Explanation- Margin of safety = Actual sales – Break even sales

= 1030 units-880 units

= 150 units

Where- Break even sales in units= Fixed costs/Contribution margin per unit

= $9680/($27 per unit-$16 per unit)

= 880 units

2)- Margin of safety ratio =14.56%.

Margin of safety ratio = (Margin of safety sales/Actual sales)*100

= (150 units/1030 units)*100

= 14.56%