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# Exercise 5-8 Compute the Margin of Safety [LO5-7] Molander Corporation is a distributor of a sun...

Exercise 5-8 Compute the Margin of Safety [LO5-7]

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 \$ 30 Variable expense per unit \$ 17 Fixed expense per month \$ 10,530 Unit sales per month 960

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 %

Contribution margin=Sales-Variable cost

=(30-17)=\$13 per unit

Breakeven sales=Fixed cost/Contribution margin

=(10530/13)=810 units

Margin of safety=Total sales-Breakeven sales

=(960-810)=150 units

=(150*30)=\$4500

Margin of safety %=Margin of safety/Total sales

=(150/960)=15.63%(Approx).

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