Question

Molander Corporation is a distributor of a sun umbrella used at resort hotels Data concerning the next month's budget appear below $27 per unit $17 per unit $8.500 per month Selling price Fixed expenses Unit sales 1,000 units per month Required: 1. Compute the companys margin of safety (Do not round intermediate calculations.) 2 Compute the companys margıin of safety as a percentage of its sales (Round your percentage answer to 2 decimal places p.e 1234 should be entered as 12.34

Answer 1

Requirement 1:

Selling Price = 27

Variable cost = 17

Contribution per unit = $27 - $17=$10

Fixed cost = $8500

Break even sales = (Fixed cost ÷ Contribution per unit) x Selling price per unit

= (8500 ÷ 10) x 27

= 22,950

Expected Sales = 1000 x 27 = 27000

Margin of safety = Expected Sales – Break even sales

= 27000– 22950

= 4,050

Margin of safety $4,050

Requirement 2:

Margin of safety ratio = (Margin of Safety ÷ Expected sales) x 100

= (4050 ÷ 27000) x 100

= 15%

Margin of safety as a percentage of sales % = 15%

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