Question

Exercise 6-8 Compute the Margin of Safety (LO6-7) Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget appear below: 46 Selling price per unit Variable expense per unit Fixed expense per month Unit sales per month $ 28 $ 14 $11,620 980 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 (.e. 0.1234 should be entered as 12.34).) es 1. Margin of safety (in dollars) 2. Margin of safety percentage %

Answer 1

Contribution margin per unit           = Selling price per unit (-) Variable cost per Unit           =     $ 28 (-) $ 14           =     $ 14
Break Even Sales          = (Fixed Cost / Contribution margin per unit ) x Selling price          = ( $ 11,620 / $ 14 ) x $ 28          =    $ 23,240
1)
Margin of safety in dollars                 = Total sales (-) Break Even Sales                 =   ( 980 Units x $ 28 ) (-) $ 23,240                 =    $ 27,440 (-) $ 23,240	$ 4,200
2)
Margin of safety inpercentage                 = Margin of safety in dollars / Total Sales                 =    $ 4,200 / $ 27,440	15.31%