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 $ 14 $ 10,320 1,010 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

Answer :-

1. Margin of safety ( in dollars ) :-

To compute the Margin of Safety , we must first compute the break-even unit sales :-

Profit = Unit CM * Q - Fixed Expenses

$0 = ( $26 - $14) * Q - $10,320

$0 = ($12) * Q - $10,320

$12Q = $10,320

Q = $10,320 / $12

Q =860 units or at $26 per unit , $22,360

Margin of Safety (in dollars) = Sales at budgeted volume of 1,010 units - Break Even sales

Margin of Safety ( in dollars) = $26,260 - $22,360

Margin of Safety (in dollars) = $3,900

2. Margin of Safety Percentage = Margin of Safety/Sales

Margin of Safety Percentage = $3,900 / $26,260

Margin of Safety Percentage = 14.85%