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	$	24
Variable expense per unit	$	13
Fixed expense per month	$	9,790
Unit sales per month		1,040

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).)

Answer 1

Answer 1. Company's margin of safety & Margin of safety = (Total Sales Break even boint sales Total unit sales - per month 1040 units Break even point sales - (in units) Fixed expenses Contribution margin berunit fixed expenses $ 9,790 per month Contribution marginber - Senting price - Vasiebla expense ($ 24 - $ 13 per anit unit - per unit $ 11

- Break even point Sales (in units) $ 9,790 $11 890 units → company's margin of safety = (1,040 – 890 ) unit: = 150 units. Therefore, the company's margin of safety is 150 units. → 2. Company's margin of safety as a percentage of its sales - Sales units x 100 Company's margin of Total Safety as a percentage Break even point Sales units of its Sales x 100 Total Sales units Company's margin of (1,040 - 890) units Safety as a percentage of its sales 1,040 units = 150 units 1,040 units = 14.42% x loo Therefore, the company's mangin of safety as a bercentage of its Sales is 14.42%