Question

Exercise 6-8 Compute the Margin of Safety (L06-7) 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 Variable expense per unit Fixed expense per month Unit sales per month $ 25 $ 18 $ 6,090 1,020 es 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 (.e. 0.1234 should be entered as 12.34).) 1. Margin of safety (in dollars) 2. Margin of safety percentage

Answer 1

Exercise 6-8:

Answer of Part 1:

Contribution Margin per unit = Selling price per unit * Variable Expenses per unit
Contribution Margin per unit = $25 - $18
Contribution margin per unit = $7

Break Even Point in Units = Fixed Expenses / Contribution Margin per unit
Break Even Point in Units = $6,090 / $7
Break Even Point In Units = 870 units

Margin of Safety in Units = Actual Sales Units – Break Even Units
Margin of Safety in Units = 1,020 – 870
Margin of Safety in Units = 150 units

Margin of Safety in Dollars= Margin of Safety in Units * Selling price per unit
Margin of Safety in Dollars = 150 * $25
Margin of Safety in Dollars = $3,750

Answer of Part 2:

Actual Sales = $25*1,020
Actual Sales = $25,500

Margin of Safety percentage = Margin of Safety /Actual Sales *100
Margin of Safety percentage = $3,750 / $25,500 *100
Margin of Safety percentage = 14.71%