Molander Corporation is a distributor of a sun umbrella used at resort hotels. D

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 $23 per unit Variable expenses $16 per unit Fixed expenses $5,670 per month Unit sales 960 units per month

Required: 1. Compute the company’s margin of safety. (Do not round intermediate calculations.)

2. Compute 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).

Explanation / Answer

Break Even point (in units) = Fixed Expenses / Contribution per unit
= $5,670 / ($23 - $16) = 810 units

Break Even point (in sales) = 810 x $23 = $18,630

1. Margin of safety = Actual Sales - Break Even point
= 960 x $23 - 810 x $23
= $3,450 or 150 units

2. Margin of safety as a percentage of its sales = $3,450 / $22,080 = 15.63

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