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 Variable expense per unit Fixed expense per month Unit sales per month $ 28 $ 13 $12,600 990 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

Answer 1

Solution:
1.	Margin of safety (in dollars) = $4,200
2.	Margin of safety % = 15.15 %
Working Notes:
Notes:	Margin of safety is difference of actual sales and break even sales , it the safety which is before making loss.
	Contribution margin per unit = Selling price per unit - Variable cost per unit
	=$28 - $13
	=$15
	Break even units = Fixed cost/ Contribution margin per unit
	=$12,600/$15
	=840 units
	Margin of safety in units = total budgeted units - Break even units
		=990 - 840
		=150 units
	Margin of safety (in dollars) = Margin of safety in units x Selling price per unit
		=150 x $28
		=$4,200
	Margin of safety (%) = Margin of safety in dollars/Total budgeted sales
	=$4,200/(budgeted sales in units x selling price per unit)
	=$4,200/(990 x 28)
	=$4,200/27,720
	=0.15151515
	=15.15%
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