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 per unit Variable expense per unit Fixed expense per month Unit sales per month $ 24 18 $5,160 1,010 $ Required: 1. What is the company's margin of safety? (Do not round intermediate calculations.) What is the company's margin of safety as a percentage of its sales? (Round your percentege answer to 2 decimal places (iae 1234 should be entered as 12.34).) 1. Margin of safety (in dollars) 2. Margin of safety percentage

Explanation / Answer

1. To compute the margin of safety, we must first compute the break-even unit sales.

Sales = Variable expenses + Fixed expenses + Profits

$24Q = $18Q + $5,160 + $0

$6Q = $5,160

Q = $5,160 ÷ $6 per unit

Q = 860 units

Margin of safety (in dollars) = Sales (at the budgeted volume of 1,010 units) - Break-even sales (at 860 units)

Margin of safety (in dollars) = $24,240 - $20,640

Margin of safety (in dollars) = $3,600

2. Margin of safety as a percentage of sales = Margin of safety (in dollars) / Sales = $3,600 / $24,240 = 14.85%

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