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 $ 13 $ 10,790 980 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. .1234 should be entered as 12.34).) 1. Margin of safety (in dollars) 2. Margin of safety percentage %

Answer 1

Requirement 1

Margin of Safety in Dollars = Sales - Breakeven sales

Breakeven sales = Fixed cost / Contribution margin % = 10790 / (26-13 ) / 26 = 10790 / 50% = $21580

Sales = 980 units x $26 = $25480

Margin of Safety in Dollars = $25480 - $21580 = $3900

Requirement 2

Margin of Safety percentage = Margin of Safety in Dollars / Sales in dollars = $3900 / $25480 = 15.31%