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 $ 29 Variable expense per unit $ 14 Fixed expense per month $ 12,450 Unit sales per month 980
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. 0.1234 should be entered as 12.34).)
Contribution margin ratio = (selling price - variable cost per unit)/selling price
= ($29 - $14)/$29 = 51.72%
Break even point (dollar sales) = fixed expenses/contribution margin ratio
= $12450/51.72%
= $24071.93
(1)
margin of safety (in dollars) = total sales - break even sales
= (980 x $29) - $24071.93
= $28420 - $24071.93
= $4348.07
(2)
margin of safety (in %) = margin of safety in dollars/total sales
= $4348.07/$28420
= 15.30%
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