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 $ 23 Variable expense per unit $ 15 Fixed expense per month $ 7,040 Unit sales per month 1,030 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. 0.1234 should be entered as 12.34).)

Answer 1

Answer:

Margin of safety= 150 untis

Margin of safety ratio= 15%

Explanation:

Giving the following information:

Selling price per unit $23

Variable expense per unit $15

Fixed expense per month $ 7,040

Unit sales per month 1,030

First, we need to calculate the break-even point in units:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 7,040 / (23 - 15)

Break-even point in units= 880

Now,  the margin of safety in units and as a percentage:

Margin of safety= (current sales level - break-even point)

Margin of safety= 1,030 - 880

Margin of safety= 150 untis

Margin of safety ratio= (current sales level - break-even point)/current sales level

Margin of safety ratio=  150/1,030

Margin of safety ratio= 0.146

Margin of safety ratio= 15%