Question

Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next months budget appear below:

Selling price per unit $29 per unit
Variable expenses $16 per unit
Fixed expenses $8,600 per month
Unit sales 1,010 units per month

Required:
a. Compute the company’s margin of safety.
b. Compute the company’s margin of safety as a percentage of its sales.

Answer 1

Answer and Explanation:

a. The calculation of the margin of safety is

Sales price per unit $ 29.00

Variable cost per unit ($16.00)

Contribution per unit $13.00

Fixed expenses  $8,600.00

Break even sales in units ($8,600 ÷ 13) 662

Break even sales in dollars = (662 ×$29)     $19,198

Actual Sales (1,010 × $29) $29,290

Margin of safety $10,092

b. The margin of safety in percentage is

= $10,092 ÷ $29,290

= 34.46%